OPTIONS

Option is a derivative contract that gives you the right, but not the obligation, to buy or sell an underlying asset at a specific price within a certain timeframe.

Option trading is a way for savvy investors to leverage assets and control some of the risks associated with playing the market. Pretty much every investor is familiar with the saying, “Buy low and sell high.” But with options, it’s possible to profit whether stocks are going up, down, or sideways. You can use options to cut losses, protect gains, and control large chunks of stock with a relatively small cash outlay.
Options Trading Strategies have gained a lot of popularity. These are highly diversified strategies, which when used correctly, can give you some awesome results. Despite of this, there are many investors who shy away from Options.
When you use Options trading strategies wisely, they will protect, grow and diversify your position. If you are looking for Risk Management and Position trading, and then Options are the right tool you are looking for. The key here lies in finding the right strategy to your advantage.

Here are the top 6 Options Trading Strategies:

Long Call Options Trading Strategy
Short Call Options Trading Strategy
Long Put Options Trading Strategy
Short Put Options Trading Strategy
Long Straddle Options Trading Strategy
Short Straddle Options Trading Strategy

This is one of the option trading strategies for aggressive investors who are very bullish about a stock or an index.
Buying calls can be an excellent way to capture the upside potential with limited downside risk.
It is the most basic of all options trading strategies. It is comparatively an easy strategy to understand.
When you buy it means you are bullish on a stock or an index and you expect to rise in future.

Best time to Use: When you are very bullish on the stock or index.

Risk is limited to the Premium. (There is a maximum loss if market expires at or below the option strike price).
Reward is Unlimited.
(Strike Price + Premium).

The strategy of a short call is opposite of Long Call Strategy. When you expect the underlying stock to fall you adopt this strategy.
An investor can sell Call options when he is very bearish about a stock / index and expects the prices to fall.
This is a position which offers limited profit potential. An Investor can incur large losses if the underlying price starts increasing instead of decreasing.
Though this strategy is easy to execute, it can be quite risky since the seller of the Call is exposed to unlimited risk.

Best time to Use: When you are very bearish on the stock or index.

Risk: Risk here becomes Unlimited.

Reward: Reward is limited to the amount of premium.

Breakeven: Strike Price+ Premium.

2- Short Call Options Trading Strategy

1- Long Call Options Trading Strategy

Long Put is different from Long Call. Here you must understand that buying a Put is the opposite of buying a Call.
When you are bullish about the stock / index, you buy a Call. But when you are bearish, you may buy a Put option.
A Put Option gives the buyer a right to sell the stock (to the Put seller) at a pre-specified price. He thereby limits his risk.
Thus, the Long Put there becomes a Bearish strategy. You as an investor can buy Put options to take advantage of a falling market.
Best time to Use: When the investor is bearish about the stock /index.
Risk: Risk is limited to the amount of Premium paid.
Reward: Unlimited.
Breakeven: (Strike Price – Premium).

In long Put option trading strategy, we saw when the investor is bearish on a stock he buys Put. But selling a Put is opposite of buying a Put.
An investor will generally sell the Put when he is Bullish about the stock. In this case, the investor expects the stock price to rise.
When an investor sells a Put, he earns a Premium (from the buyer of the Put). Here the investor has sold someone the right to sell him the stock at the strike price.
If the stock price increases above the strike price, this strategy will make a profit for the seller since the buyer will not exercise the Put.
But, if the stock price decreases below the strike price, more than the amount of the premium, the Put seller will start losing money. The potential loss is unlimited here.

Best time to Use: When the investor is very Bullish on the stock or the index.

Risk: Put Strike Price –Put Premium.

Reward: It is limited to the amount of Premium.

Breakeven: (Strike Price – Premium).

The long straddle strategy is also known as buy straddle or simply “straddle”. It is one of the neutral options trading strategies that involve simultaneously buying a put and a call of the same underlying stock.
The strike price and expiration date are the same. By having long positions in both call and put options, this strategy can achieve large profits no matter which way the underlying stock price heads.
But the move has to be strong enough.

Best time to Use: When the investor thinks that the underlying stock / index will experience significant volatility in the near term.

Risk: Limited to the initial premium paid.

Reward: The reward here is Unlimited.

1. Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid.

2. Lower Breakeven Point = Strike Price of Long Put – Net Premium Paid.

A Short Straddle is exactly the opposite of Long Straddle.
Investor can adopt this strategy when he feels that the market will not show much movement. Thereby he sells a Call and a Put on the same stock / index for the same maturity and strike price.
It creates a net income for the investor. If the stock / index do not move much in either direction, the investor retains the Premium as neither the Call nor the Put will be exercised.

Best time to Use: When the investor thinks that the underlying stock will experience very little volatility in the near term.

Risk: Unlimited.

Reward: Limited to the premium received.

1. Upper Breakeven Point = Strike Price of Short Call + Net Premium Received.

6- Short Straddle Options Trading Strategy

5- Long Straddle Options Trading Strategy

4- Short Put Options Trading Strategy

3- Long Put Options Trading Strategy

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