Option Strategies Explained



options strategiesTrading options can be a little daunting at first; they’re certainly more complicated to learn than trading stocks or even futures.

But it doesn’t have to be that way; once you’ve got a thorough understanding of the basics you can move on to implementing one of the many options strategies that have been developed.

In this article were going to look at some of the most common options strategies available. You should look at implementing a few of them into your overall trading strategy.

The best advice I can give is; don’t bite off more than you can chew, concentrate on one strategy at a time until you’ve mastered it and then move on to the next one.

Long Put Strategy
The long put strategy is a basic options strategy that involves buying put options with the belief that the underlying security will drop well below the strike price before the expiration date. Read more

Long Call Strategy
The long call strategy is the opposite of the long put strategy, in that it involves buying call options in the hope that the price of the underlying asset will rise above the strike price before the expiry date. Read more

Covered Call Strategy
The covered call strategy is a strategy that involves holding a long position in an asset and writing (selling) call options on the same asset. This strategy is often used when an investor has a short-term neutral view on an underlying asset but wishes to hold onto it long term, whilst simultaneously having a short position to profit from the short term downward trend. Read More

Covered Put Strategy
The covered put strategy is the opposite of the covered call strategy and involves holding a short position in an asset whilst buying put options on the same asset. This strategy is used to hedge your long term short position against a short term rise in the price. Read More

Iron Condor Options Strategy
The iron condor is an advanced options strategy that consists of buying and holding four different options with different strike prices. The strategy is constructed by holding long and short positions in two different strangle strategies. A strangle is created by buying or selling a call option and a put option with different strike prices, but with the same expiration date. Read more

Long Strangle Options Strategy
The long strangle options strategy involves simultaneously buying a slightly out-of-the-money put and a slightly out-of-the-money call of the same underlying stock and expiration date. This strategy is used when the investor thinks that the underlying stock will experience significant volatility in the near term. Read More

Short Strangle Options Strategy
The short strangle options strategy involves simultaneously selling a slightly out-of-the-money put and a slightly out-of-the-money call of the same underlying stock and expiration date. This strategy is used when the investor thinks that the underlying stock will experience little volatility in the near term. Read More

Bull Put Spread Strategy
The bull put spread trading strategy is implemented by selling an in-the-money put option with a higher strike price and buying an out-of-the-money put option with a lower strike price of the same underlying stock with the same expiration date.

The bull put spread strategy is employed when the investor thinks that the price of the underlying asset will go up in the near term. Read More

Bear Put Spread Strategy
The bear put spread strategy can be implemented by buying an in-the-money put option with a higher strike price and selling an out-of-the-money put option with a lower strike price of the same underlying security with the same expiration date.

The bear put spread strategy is used when the investor thinks that the price of the underlying asset will go down in the long term. Read More

Bull Call Spread Strategy
The bull call spread strategy is implemented by buying an at-the-money call option while simultaneously selling a higher striking out-of-the-money call option of the same underlying security and the same expiration month.

This strategy is employed when the investor thinks that the price of the underlying asset will go up moderately in the near term. Read More

Bear Call Spread Strategy
The bear call spread strategy is implemented by buying call options at a certain strike price and selling the same number of call options with a lower strike price on the same underlying asset expiring in the same month.

This strategy is employed when the options trader thinks that the price of the underlying asset will go down moderately in the near term. Read More

Bull Calendar Spread Strategy
The bull calendar spread strategy is setup by buying long term slightly out-of-the-money calls and simultaneously writing an equal number of near month calls of the same underlying security with the same strike price.

The investor applying this strategy is bullish for the long term and is selling the near month calls with the intention to ride the long term calls for free. Read More

Bear Calendar Spread Strategy
A bear calendar spread consists of two options: a long put option and a short put option. You must pay for the long put option but you receive a premium for selling the short put option.

The bear calendar spread is used by investors who believe that the price of the underlying asset will remain stable in the near term but will eventually fall in the long term. Read More

Protective Put Options Strategy
The protective put strategy is a hedging strategy where the holder of a security buys a put to guard against a drop in the stock price of the underlying security.

A protective put strategy is usually employed when the investor is still bullish on a stock he already owns but wary of uncertainties in the near term. It’s used as a means to protect unrealized gains on shares from a previous purchase. Read More

Protective Call Options Strategy
The protective call options strategy consists of buying a long position in an underlying asset and writing (selling) call options on that same asset in an attempt to generate extra profit. Read More




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