Options trading is one of the most fascinating and challenging areas of the trading world. It has a vast potential for substantial financial gains and profits. If you don’t have a strong trading background, you may not have come across options trading or may not fully understand its intricacies.
Options trading might seem complicated on the surface, especially if you are new to the trading world. However, regular practice and hard work can help you ease into the trading domain. If you want to become a successful options trader, this blog can be a friendly guide. It lists some crucial strategies to master the art of options trading.
4 Essential strategies to become an experienced options trader
Most options trading strategies are based on two fundamental options—calls and puts. You can also create your own plan by combining some of the basic options strategies. Here are the necessary strategies you can encounter in options trading.
- The covered call strategy: The covered call strategy requires you to sell call options for every 100 shares of the underlying stock you own. You can only do this if you are confident that the stock prices will not fluctuate until the option expires. It can also be used as the exit strategy if you are selling your call for a strike price you are willing to receive. However, you cannot earn extra income on the request other than the premium you paid.
- The long put strategy: The long put is an options trading strategy that focuses on buying a stock that is expected to decline in value, to earn a tremendous upside. You can make a significant return on your investment by short-selling the capital in select cases. The long put can also limit your loss to just the premium amount. This strategy can be beneficial if the stock price declines below the strike price before the option expires.
- The short put strategy: According to this strategy, you can sell a put if you expect the stock price to be more than the strike price. This can work only by the time the option reaches expiration. This strategy resembles insurance sales against specific stock falling below their original rates. On the downside, you can stand to lose your premium amount if the stock prices fall below the strike prices.
- The long call strategy: The long call strategy can require you to buy a call option before its expiration when it is expected to be above the strike price. It is very similar to the long put strategy but provides results only on the rise of the stock prices. The long call can help you earn a higher return percentage as compared to owning the stock directly. The risk of the strategy involves the loss of the premium amount paid for the call if the stock prices drop.
In the beginning, it might be wise to remember that options trading strategies can seem complicated. Pursuing an options trading course can simplify them as well as provide an expanded understanding of all the intricacies involved in options trading. Follow options trading strategies to earn more money and kick-start your trading career.