Traders often come across the term options trading strategy. But what options trading strategies can they apply for profitable investments? Unfortunately, very few traders are aware of it.
As we know, options are an investment in the future, so what strategies can we use to make money from them? To learn about it, we briefly analyse the options trading strategies.
Best Options Trading Strategies
Here is the list and explanation of the best options trading strategies. Traders can use them as per their trading style and time duration. In addition, one can use many short-term and long-term trading strategies.
Options are investing on a future date with a specific date and price. So, to trade such unique assets, traders require unique strategies.
A covered call is the best options trading strategy. Traders can use it to buy assets from the market. Call-in options refer to buying, and a covered call belongs to buying assets.
Traders can buy naked option calls or refer to the strategy as buy-write. The strategy is popular as it generates income while minimising the risks. However, the investment in the market must have a trader willing to sell the underlying asset.
The underlying asset sell should be at the specific price and date the trader wants.
In executing the strategy, traders buy the underlying asset and then write off the call option for the same asset.
Bull Put Spread
In options trading, when a trader believes that the price of an underlying asset will increase, they use a bull put spread. The options trading strategy is an excellent style to earn from derivative trading.
The strategy is part of credit spreads. Traders in the strategy use the spreads entails selling to put options. Then, they purchase put options at a lower strike. In this, the traders benefit from the situation as the short put option will lose value more quickly than a long put option.
It is a great option buying strategy.
In the married put strategy, traders purchase the asset and purchase put options for the same amount. The trader has the right to sell the particular asset at its strike price.
Many traders use the strategy as downside protection from the risks. It is similar to an insurance policy to have protection for the clients. Traders also refer to it as a protective put.
Bull Call Spread
In a bull call spread strategy, traders buy calls at specific strike prices simultaneously. They also sell the same number of calls at a high strike price. As a result, the call options will have the same expiration date and underlying asset.
It is a vertical spread strategy and is often in use for options traders when an investor is bullish on the trading asset expecting a moderate rise in the asset price.
With the strategy, traders limit their upside on the trade and reduce the net premium spending.
The iron condor option strategy is investors simultaneously holding a bull put spread and bear call spread. The strategy is constructed by selling one out-of-the-money (OTM).
Out-of-the-money put and buying OTM put of the lower strike is a bull put spread. Then selling one OTM call and buying one OTM call of a high strike, a bear call spread.
The options strategy has the same expiration date and same underlying asset.
Also, the put and call spreads have the same spread width. With the trading strategy, traders can earn a net premium and take advantage of low volatility.
Several traders prefer the strategy for the high probability of earning a small premium.
Options trading strategies are of great importance if traders execute them properly. However, they need to have patience and analyse the market for beneficial investments. Therefore, the article focuses on five easy-to-use options trading strategies.
Traders can use them to plan their investments and make the most of the complex options trading strategy.
However, traders have to monitor their investments regularly. It will help them know the market changes and make the right decisions.