Plan Your Steps:Option trading strategies

If you are familiar with the basic ideas of the options trading, you might know that there are various option trading strategies.Although option trading is much safer than trading of actual stock, it requires some strategies to get the most out of it. So, you need to know more about those strategies to incorporate option trading to your investment plan successfully.

First of all, we need to know what option trading strategies thereare. Basically, there are three of them. One being the bullish strategy, one is bearish and one is the neutral. They can be simple ones and can be much complex ones incorporating multiple stock options.The simplest one can be buying a simple long call option. A more complex one can be buying multiple call and put options having same or different strike price and expiration date.

Among the option trading strategies, abullish strategy is one which gets benefited from the increase of market price of a stock.It may include a single call option or some combination of options in which the call options are most dominant. A bearish strategy is the opposite. It gets benefited from the decline in market price of the stock. The simplest bearish strategy can be buying a single put option. A neutral strategy is one that gets benefited from the neutral state of the market, and usually are complex ones.

To determine which strategy you should be following, you need a good idea about the various factors that controls the market. The better you information is, the better you will be able to find the appropriate strategy. The better the conditions flow the way you’ve planned, the better your option trading strategies will come into use. But however, the things don’t always come as they expected and there may be thousand things that can go wrong. In that case, a good strategy can also help you minimize the risks. Consider a strategy having both call options and put options for same stock at same strike price. This strategy can profit either if the stock price rise or fall. These types of strategies can be beneficial if you know that the market is unstable but do not know which way the market will go.

A good tip when making option trading strategies is to buy options that have low price. This minimizes the possible amount off loss and enlarges the window of profit. For example, in the above strategy, if the market price does not change, it will be a loss. In that case, the amount of loss will be the prices of the stock. Also, in case of change in the market price, the max amount of gain would be found by subtracting the price of the stock from the actual increase or decrease of the stock price. So, in that case if the stock price is low, it would be more beneficial.

So, we can see to get good outcome from option trading, you need good knowledge of option trading strategies. For a better knowledge about them you can consult licensed consulting firms or search for good reading material on them.

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