Top Options Trading Strategies for Beginner Traders
Options are complicated financial instruments. Like any derivative, options are derived from underlying assets, and these assets can be stocks, bonds, futures, or currencies.
Options trading gives the stockholder the right to buy or sell the underlying asset at a designated price in the future. In exchange for this right, option buyers are charged a premium by sellers. This premium is what gives an option its value. In strict terms, an option is worth precisely what its premium is worth; however, like all other financial instruments, options trade in the open market, and their prices change as traders take positions. If a trader buys an option to buy a stock at $50 in three months’ time and that stock rises to $60 in two months’ time, then that trader will exercise their option to buy it for $50 and immediately sell it for $60 in order to make a $10 profit.
Options trading can be a daunting task, and beginners may find it challenging to understand the complexities. However, there are numerous options trading strategies that can be used by beginners to start their trading journey.
Let us look at a few bullish strategies below:
- Bull Call Spread
The bull call spread is one of the many options trading strategies that can be used when they’re bullish on the movement of an underlying asset. This strategy calls for an investor to buy one ATM call option contract, and sell an OTM call option contract. Bull Call Spread is popular as it helps to protect against losses when the prices fall and the profit amount is also limited.
- Bull Put Spread
This is one of the bullish option trading strategies that traders can implement when they are a little bullish on the movement of the underlying asset. It is a limited risk, unlimited profit trading strategy that involves purchasing one put and writing another put with a lower strike price.
- Synthetic Call
The Synthetic Call strategy is one of the option trading strategies and is used by those traders who have a bullish view of the stock for the long term but are also worried about the downside risks at the same time. It involves buying put options of the stock that we are holding and on which we have a bullish view. If the price of the underlying rises, then we shall make profits whereas if the price falls then the loss will be limited to the premium that is paid for the put option.
Some popular bearish options trading strategies include:
- Bear Call Spread
A bear call spread is an options strategy that is used when an investor expects the price of the underlying asset to drop. The investor will purchase call options at one strike price, then sell the same number of calls at a lower strike price. The maximum profit possible using this strategy is equal to the credit received when initiating the trade.
- Bear Put Spread
This is one of the bearish option trading strategies used when the trader is moderately bearish on the direction of prices of the stocks but desires to lower their initial expense of long Put by acquiring a premium on the short Put. This strategy gives maximum profit when the underlying stock moves below the lower strike price.
Conclusion If you are looking for more in-depth options trading strategies, financial advice on trading stocks, and staying on top of all matters money, then you can rely on Omega Finance Group. Omega Finance Group offers the latest stock picks based on your financial goals. Reach out to Omega Finance Group today to start your stock investing journey.