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6 Best Options Trading Strategies for Beginners – Share Market Profile

6 Best Options Trading Strategies for Beginners – Share Market Profile

Most traders struggle to get an understanding of option trading strategies. These are strategies which are tough to learn and however they can limit the risk exposure of the trader.

There are various strategies which need to be learnt with care while dealing with options trading. Initially when the trader is exposed to options trading they usually struggle with it. Later however, when they gain clarity on the basic procedures it is easy to implement in options trading. It is largely helpful in limiting the risk factor, enhancing profitability and betting on the overall movement of the stocks and the market on the whole. Let us analyse the various strategies in detail.

Covered Option

It is a popular strategy used by traders for generating surplus on their investment and limiting the risk exposure of the traders. It is a simple methodology in which the trader sells shares at a pre-set price which is also technically known as the short strike price. The execution of the strategy is done in a simplified manner in which the buying of the shares takes place in the same traditional manner in which the investors buy the stocks and at the same time a call is sold option on the same stock. The reason why this is a popular option among the traders is because the risk in this format of option trading is limited. The downside risk in covered calls is less and as all traders are conscious about the risk exposure while trading so it is a popular strategy among the investors. Investors with short term positions usually take up this strategy. Traders try to generate profit by selling through a call premium or taking a protection against a potential decline of stock prices in the market. As the stock price moves to the upside from the strike price an investor earns a premium by selling the call.

Married Put

The married put is another option in which an investor buys shares and put options at the same time of the same number. The trader who holds the put option can sell stocks once the price reaches the strike price. It is used as a strategy to prevent the downside risk of holding a stock. In the strategy as the stocks gain price the trader is able to participate in all upside opportunities however there is a negative side to it in which the trader loses money on put option if the stock does not fall in value. With a put option a trader earns from the falling price of the stock. By buying a put option a trader earns money even from the falling prices of stocks.

 

Bull Call Spread

In a bull call strategy there is a one long call which has a lower strike price and a short term call at a higher strike price. Both these calls are for the same stocks and expire at the same time. The traders benefit with the strategy as the profit is limited in value if the stock prices rise above the strike price and the losses are limited if the stock prices are below the strike price in a long call. Traders usually opt for this option because the losses can be limited as the investor uses the net cost to create the spread. In case you want to get into a bullish bet on a stock with reduced risk and lower break even then perhaps a long call spread is the right option that you should go ahead with.

Bear Put Spread

It is a vertical spread. In this strategy the trader buys put options at a particular strike price and sells the same number of options at lower strike price. The options purchased and sold are for the same stock and expire at the same time. This strategy is used in a bearish market and expects the stock prices to fall. This is a strategy for limiting the losses and the profits earned is also limited in nature. The trader in this case has a bearish tendency and he wants to limit his losses and maximise his profits through this strategy.

Protective collar strategy

This is a strategy which allows a trader to have a short term downside protection and gives a protection against losses to make money when the market goes up. The collar is used to cut losses and the protection is used along with two strategies that are a protective collar and a covered call. As the customer sells one option he even funds the purchase of shares. This helps the trader to hold the shares and the trader at the same time can buy protective puts and write call options at the same time for the same share.

Long straddle strategy

A long straddle approach comes into play when a trader buys a call and put option on the same stock which has the same strike price and the same date of expiry. It is used in a case in which the market is turbulent and the stock prices can move in any particular direction which is unknown to the trader. In this strategy the trader can have a huge amount of profit or unlimited losses as well.

To learn the put and option strategy it is important that it should be learnt in a step wise manner from a learned practitioner or an ongoing institute. Share market profile is an ongoing institute in Chennai which runs online classes on share and stock market trading for new traders and investors. You can enrol yourself in their classes and learn the tricks of the trade. To learn more about their services go ahead and log on to their website www.sharemarketprofile.com

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