Trading options have gained a lot of popularity in the past few decades. It is something that many investors have embraced as an investment opportunity.
When it comes to the stock market, it is always about finding ways of maximizing your investment. There’s no doubt that options trading has proved to be a viable investment option for many people in the country and across the world.
What is options trading?
Options trading is a situation where investors get rights to purchase and sell shares of an underlying stock for a predetermined price at a later date.
Below are the seven popular options trading strategies
Long Calls and Puts
Long calls and puts are can be described as positions in underlying security options rather than the actual security. A long call utilizes options to anticipate a rise in the price of the underlying security whereas a long put takes advantage of options to anticipate a decrease in the price of the underlying security.
The long calls and puts strategies are commonly used by traders to maximize profits considering the fact that they cost a small premium as opposed to the potential increase in their value.
Bull call spread
A bull call spread refers to the purchase of call options at a single stride price as well as the writing of a similar number of call options containing the same expiry date – but at a relatively higher price. This strategy is commonly used when a trader is confident about the direction of an upcoming price change.
Bear put spread strategy
A bear put spread is a situation where a trader buys put options while selling a similar number of put options with the same expiry date. Traders usually use this strategy when they are anticipating a moderate decline in the price of a security.
This is an options strategy where investors buy call options and put options using the same strike price – normally the existing price of the security with the same expiry date. Traders use this strategy when they are not sure of the direction of the upcoming price change.
This strategy is almost the same as the straddle options strategy. However, the main difference is that it involves the purchase of call options and put options simultaneously at varying strike prices. A trader will use this strategy if he or he is certain of a significant upcoming price change.
The is the sale of put or call options at a set strike price, usually the current price in line with the same number of bought call or put options from the strike price
According to tastytrade, vertical spread is a directional strategy made up of long and short puts/calls at different strikes in the same expiration.” This is an options strategy that involves the buying and selling of similar options with the same expiry dates but varying strike prices. It is important to note that the value of vertical spreads increases when underlying assets rise.
There are many options strategies that traders can use to maximize profits. All you have to do is to select one that best suits your situation.