Employing Options Trading: Options Trading Strategies & Tips can be an astute and potentially lucrative plan of action for stock market investors who are looking to maximize their success in the trading arena. The following seven investing tactics are bullish options trading strategies that every investor should know. Read on and learn some options trading basics.
Options Trading Strategies – Definitions
1) LONG CALL
A long call gives traders the right to purchase shares of a stock at a specific price. These options trading strategies offers investors all of the benefits of owning a stock outright while putting much less capital at risk. Each individual contract controls 100 shares of a stock. If the stock price rises, the upside is virtually unlimited. If it drops, losses are limited to the initial investment. This is a good way to learn from the options trading tutorial.
2) COVERED CALL
In a covered call, investors sell a call option against a stock they hold in an attempt to generate extra income on the asset. These options trading strategies and options trading tips comes into play when an investor likes a stock but has a neutral opinion on its short-term prospects. An investor profits from this strategy when the stock trades relatively flat through the option’s expiration date.
3) PROTECTIVE PUT
A protective put acts as a form of an insurance policy on a stock. The cost of a protective put can limit an investor’s gain if the stock price increases while greatly reducing risk in the event the price of the shares plummets. Investors often use this options trading strategies in volatile stock sectors such as biotechnology. Important term in options trading for dummies.
4) BULL CALL SPREAD
With a bull call spread, an investor buys call options trading strategies at a certain strike price and simultaneously sells the same number of calls at a higher strike. Investors who foresee a moderate increase in the price of the underlying stock can benefit from bull call spreads. This strategy offers a slightly limited upside but less exposure to potential losses. This strategy is better than reading many options trading books.
5) BULL PUT SPREAD
In a bull put spread, an investor buys a put option while selling a separate put options trading strategies with a higher strike price at the same time. The investor’s goal is to collect the premium when the shares remain above the higher strike price and the short option expires worthless. Traders user this a lot as their favorite options trading strategies.
6) CALL BACK SPREAD
A call back spread is one of the most powerful options trading strategies for volatile stocks expected to undergo major moves. It entails selling a call while purchasing more calls at a higher strike price. If the stock falls, the result is basically neutral. If the stock surges, the upside is virtually unlimited.
7) NAKED PUT
With a naked put, investors obligate themselves to purchase a stock at a specific price. The underlying market price is irrelevant. This strategy allows investors to purchase shares of a desirable stock at a discount if the price falls. Investors also collect a premium on the put. This is one of the most popular options trading strategies. Also a popular options trading example. Hope you enjoyed the options trading education.
Options Trading Strategies – Useful Links
- Definitions of Options Trading Strategies on Investopedia
- Another definition of Options Trading Strategies on Wikipedia
- Useful resource about Options Trading Strategies
- Another Useful resource about Options Trading Strategies in InvestorPlace
- Options Trading Strategies article on Wikipedia
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