Options Trading Strategies – Today
Traders always consider options as a complex financial instrument, which when used by an ignorant player, results in huge financial loss. It is inevitable that an options trader will identify and thoroughly understand options trading strategies that can guide them in managing their risk effectively, regardless of what turn the market takes. Think strategically and seize the moment for maximum benefit. The cost of trading options, including commission, must be recovered from the transaction in order for it to be productive.
Some of the simple strategies that guide option trading are mentioned below:
bullish strategies
When the option trader expects a rise in the stock price, he employs a bullish option strategy. The trader must identify how high prices will rise within the expected time frame before making the purchase. The strategies used vary depending on the level of optimism exhibited by the market. In a slightly bullish market, the trader looks for a little protection on the downside. In a moderately bull market, an options trader prefers the bull call spread and bull put spread strategies. When the market is highly volatile in nature, the options trader tries to take advantage of the high level of fluctuation by using various options trading strategies such as long straddle, long strangle, short condor and short butterfly.
bearish strategies
Bearish options strategies are employed when the options trader expects stock prices to decline. Try to identify the time frame that is left to your discretion to exert maximum advantage in selecting the best trading strategy. From the simple put option call strategy used by beginners to the bearish call spread and bearish put spread employed during moderately bearish strategies, and slightly bearish trading strategies are the various options strategies that can help the trader to get the maximum profit during the bear market with a minimum loss. An options trader can also make use of ratio spreads, the long condor, and the long butterfly in a highly volatile bear market situation.
neutral strategies
When the option trader is unaware of the turn the market is going to take, he makes use of neutral strategies to determine the price movements of the underlying stock. Neutral strategies or non-directional strategies used are guts, butterfly and condor, straddle, strangle or risk reversal.
Above all, the moment that can guarantee a profitable entry and exit from the market must be carefully evaluated. Once the times are clear, identify the strategy to be employed based on market volatility. Today, with markets still highly unstable, it is necessary to take a closer look at market movements and trends to improve risk management. With better knowledge in the hands of the options trader, you are sure to make profits above commission costs, margin requirement costs and other execution expenses.