Options Trading Strategies India

Options Trading Strategies India

Option strategies are the simultaneous, and often mixed, buying or selling of one or more options that differ in one or more of the options' variables. Call options, simply known as calls, give the buyer a right to buy a particular stock at that option's strike price. Conversely, put options, simply known as puts, give the buyer the right to sell a particular stock at the option's strike price. This is often done to gain exposure to a specific type of opportunity or risk while eliminating other risks as part of a trading strategy. A very straightforward strategy might simply be the buying or selling of a single option; however, option strategies often refer to a combination of simultaneous buying and or selling of options.

We’re just going to let you get your feet wet and briefly talk about options strategies. We’ll start with basic bullish trades first. There are a lot of options trading strategies out there, but we’ll be focusing on mainly basic ones here. Don’t worry, you’ll also learn about some intermediate to ad­vanced strategies. You need to learn about different strategies so you can understand how to use them. At the end of this, we’ll show you some ways to potentially trade options in the near future. If you’re looking for more advanced strategies, the Chicago Board Options Exchange offers a mini-guide. Moreover, you can use its trading tool: Trade Builder with Trade Analyzer.

Options provide 3 key benefits - increased cost efficiency, potential to deliver better returns and act as a strategic alternative. Ask any options investor, and they are always on the hunt for the best options strategy. There are over 400 options strategies that you can deploy. But how to spot a winning strategy? It all depends on your comfort level and knowledge. Let us have a good overview of some of the popular options strategies. Read on.

Different types of strategies for trading in options

• Bull Call Spread
• Bull Put Spread
• Call Ratio Back Spread
• Bear Call Ladder
• Synthetic Long and Arbitrage
• Bear Put Spread
• Bear Call Spread
• Put Ratio Back Spread
• The Long Straddle
•  The Short Straddle
•  The Long and Short Strangle

Bullish Strategies

Bullish options strategies are employed when the options trader expects the underlying stock price to move upwards. They can also use Theta (time decay) with a bullish/bearish combo called a Calendar Spread, when sideways movement is expected. The trader may also forecast how high the stock price may go and the time frame in which the rally may occur in order to select the optimum trading strategy for buying a bullish option.

The most bullish of options trading strategies, used by most options traders, is simply buying a call option.

The market is always moving. It's up to the trader to figure out what strategy fits the markets for that time period. Moderately bullish options traders usually set a target price for the bull run and utilize bull spreads to reduce cost or eliminate risk altogether. There is limited risk trading options by using the appropriate strategy. While maximum profit is capped for some of these strategies, they usually cost less to employ for a given nominal amount of exposure. There are options that have unlimited potential to the up or down side with limited risk if done correctly. The bull call spread and the bull put spread are common examples of moderately bullish strategies.

 

Bearish Strategies

Bearish options strategies are employed when the options trader expects the underlying stock price to move downwards. It is necessary to assess how low the stock price can go and the time frame in which the decline will happen in order to select the optimum trading strategy. Selling a Bearish option is also another type of strategy that gives the trader a "credit". This does require a margin account.

The most bearish of options trading strategies is the simple put buying or selling strategy utilized by most options traders.

Mildly bearish trading strategies are options strategies that make money as long as the underlying asset does not rise to the strike price by the options expiration date. However, you can add more options to the current position and move to a more advanced position that relies on Time Decay "Theta". These strategies may provide a small upside protection as well. In general, bearish strategies yield profit with less risk of loss.

We are discuss in detail all option strategies in another posts.