If you are considering entering the world of trading make sure that, before you start, you learn as much as you can about the environment itself, the way the things work and various types of trading strategies. By getting familiar with the market you are about to enter and exploring various trading strategies, you will be able to make better-educated decisions when the right time comes.
Of course, since you probably also want to make sure you reduce the risks that follow every trade as much as possible, you should definitely consider options trading. Here, we’ll present you with some of the best options trading strategies you can use to your advantage in 2019.
But before we start…
What are options?
An optionis basically a contract that allows you to choose whether you want to trade or not at a predetermined price over a particular period of time. What this basically means is that options allow you to decide whether you want to make the trade or fall back without any repercussions. That’s why they are so popular among traders as they add an additional layer of security to risk-taking.
Now that we’ve defined what options are, let’s see what some of the best options trading strategies are.
A call option is an option that, once purchased, allows you to buy (let’s say) shares at some later time. Now, a covered call allows you to hold long position (i.e. buy certain security, such as stocks, commodities or currency while expecting the asset to rise in price) in an asset and sell call options on that particular asset with hopes of generating profit. This strategy is most commonly practiced when the investor can’t really predict the market price of a certain asset, so they choose to hold the asset long while, at the same time, deciding to sell the asset with the intent to later purchase it at a lower price.
A put option is an option that allows you to sell (for instance) shares at a later time once purchased. So, a married put allows an investor to purchase an asset and at the same time purchase put options for the same number of shares. What this means is that if you have put options you can choose to sell your assets at a strike price. This is a great option strategy to go with if you want to lower your risks and protect your holding assets. Basically, this strategy works as sort of an insurance policy, enabling the investor to establish a price floor (the minimal possible price) should the price of the asset experience a rapid decrease.
Bull call spread
Here, an investor is presented by the opportunity to buy calls at a certain strike price (the price at which the asset can be bought by the option buyer until the preset date) and, at the same time sell the exact same number of calls at a higher (strike) price. This strategy is most commonly practiced when the investor expects a certain rise in the price of the assets they’re trading with.
Bear put spread
This strategy allows the investor to buy put options at a certain strike price and, at the same time sell the same number of put options at a lower strike price. This strategy is most commonly practiced when the investor expects a certain decline in the asset’s price. The bear put spread offers both limited losses and gains, meaning that your upside is limited but your premium spent is reduced. As the name itself suggests, this strategy is preferred by bearish investors.
This strategy allows investors to buy an OTM put option and, at the same time write an OTM call option for the exact same asset and the exact same expiration date. This strategy is most commonly turned to when a long position has experienced considerable gains. This combo offers the opportunity for investors to reduce the frequency of capital losses while also potentially being able to sell their assets at a higher price.
So, if you’re considering giving trading a go, make sure you check out all the options trading strategies first, in order to lower your personal risk-taking and hopefully maximize your profits.