Traders who use Options Derivatives can only sell or buy security before its expiration and are not obligated to do so. Besides, you do not own the underlying stock when you own an Option. In this trading, Options represent 100 shares of the underlying security, whether a Bond, Commodity, or Currency.
If you are keen in Options Trading, you may be wondering how to get started. It is not a simple process, as itrequires some know-how. Hence, it isessential to know the different strategies that turn around the profit. Here, you will learn about some powerful Options Trading strategies that will help you earn more profits:
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Protective Collar
You must buy an Out of Money or OTM Put Option to put this strategy into action. Meanwhile,write an OTM Call Option with the same expirywhen you own the underlying asset. This strategy works when a long position in astock has seen substantial gains. It offers downside protection, but the trade-off is you may be obligated to sell shares at a higher price and need to forego the possibility of further profits.
Long Straddle
You must simultaneously purchase Call and Put Option of the same underlying asset for using this. Ensure the strike price and expiry dates are also the same. This strategy works when you believe the cost of the underlying asset moves over a specific range, but unsureof the direction it will take. Theoretically, it allows unlimited gains. The maximum loss you take is the cost of both Options and Futures.
Long Strangle
You buy an OTM Call and Put Option in this strategy, but the strike price is different. Make the purchase simultaneously with the same expiry date. It is used when you believe the asset price experiences a big move, but you are unsure of the direction it will take.
Iron Condor
Here, you simultaneously hold a Bull Put, and Bear Call spread. The iron condor is constructed when you sell one OTM Put and buy one OTM Put at a lower strike price. When you sell one OTM Call and buy one OTM Call at a higher strike price, every contract must have the same expiration date and underlying asset. Typically, the Call and Put sides also have the same spread width.
