5 Useful Strategies for Advanced Options Trading

5 Useful Strategies for Advanced Options Trading

Advanced Options Trading are one of the important trading methods in the share market, and it is slightly different from stocks. We all might be aware about stocks in the share market, and it is quite easy to understand. A stock is the process of buying a small portion of a particular company and it is often referred to as a share. We all buy stocks from a company expecting and expects a good return from it. As the companies grows financially, the value of our shares will also increase, and we can sell it for a better price to get good margins and profits. On the other hand, if the company has a downward growth, then your shares will also be at risk. At the same time, option is just a contract that allows you to buy or sell a stock at a pre-negotiated price b a particular date. Here we will learn more about option and its various other facts. You will be taken through the importance of the advanced options trading strategies that can help you perform better without any great number of financial risks.

 

1: The bull call spread

The bull can spread strategy in option trading is specially designed to get most benefits from the limited price increase of a stock. The bull can spread strategy uses two type of call options such as the long lower-strike call and short higher-strike call. This type of strategy can help in limiting the loss of the owned stock and cap the gain. It is a fact that the underlying stock might rise but will not exceed the strike of the short call. At the same time, the long call can protect the overall portfolio from the potential dangers that might arise from short call.

Benefits

    • Less setup cost
    • Low breakeven point
    • Less potential downside
    • Better return up to the short strike

2: The bear put spread

This is one of the most advanced options trading strategies and looks very similar to the one that we have discussed above. The only difference is that instead of a rise it is a wager on the modest decline of a stock. The bear put spread pairs strategy gives a long higher-strike along with a short lower-strike put. As per this strategy, the stock will fall but not much below the lower strike price. There are advanced options trading course which will help you understand this strategy deeply.

Benefits

    • Less setup cost
    • High breakeven point
    • Less potential downside
    • Better return up to the short strike

 

3: The long straddle

This strategy has an at-the-money long call along with an at-the-money long that has the same expiration and strike price. The long straddle wagers strategy is certain about the fact that a stock will move significantly higher or lower. At the same time, the investor will not have an idea on which direction the stock will move.

Benefits

    • Has potential for unlimited profits.
    • Limited Risks
    • Can benefit from the market in either direction.

4: The long strangle

The long strangle strategy has one long call that has a higher strike price and another long call that has a lower strike price. Both has the same underlying stock and expiration date but with different strike prices. The objective here is to make profit in case the stock creates a move in either director. If you have both a call and a put, it will increase the cost of the position while doubling the chances of success.

Benefits

    • Less expensive
    • The maximum loss is always limited to the amount of premium that is paid.
    • Unlimited maximum gain

 

5: The synthetic long

The synthetic long stock is often called as the synthetic long asset and is one of the best and advanced options trading strategies that mimics a long stock position. This strategy is adopted by the traders as they purchase at-the-money (ATM) calls and then sells a similar amount of ATM puts with same expiry dates. In other words, the synthetic long stock strategy simultaneously buys a call option and sells the same number of put options at the same strike price.

Benefits

    • Unlimited profit potential
    • Less margin requirement

 

The above strategies are the most important and commonly used in option trading across the world. The price action trading with options strategy is not in the list, but it is equally important when it comes to options trading. In this strategy, instead of buying the call options, we need to sell the put options and instead of buying the put options, we need to sell the call options. And here, the risk to reward ratio is 1:1. We should also use the option volatility and pricing strategies that teaches us to use various trading strategies and tells us how the select the right strategy based on the market conditions and individual risk tolerance.

Overall, all the options trading strategies will help you decrease the amount of risk involved and improve your earnings. Without a proper strategy and planning in the stock and options trading, you are sure to invite risks and thereby resulting in loss of money and time. You should always have a proper strategy and plan in place, along with a deep market study that will help you to identity the risks and current trends in the market.

Stock trading and options trading are not the same and hence different strategies and methods should be adopted to ensure better returns. If you do not have enough knowledge about the same, then you can also go for various courses that teaches you the tips and tricks of options trading. The advanced options trading course is provided by various institutes and you can enroll at the earliest to learn the ropes of options trading. Once you complete the course, you will get the required confidence and knowledge to make a mark in the options trading game. In the initial periods, you can also take suggestions and consultations from an experience person in the same field.

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