Option Trading Strategies -- How to Use Them -- Profit in any Market Situation!
by Ian Harvey
Option strategies are implemented by combining one or more option positions and possibly an underlying stock position.
In other words, a trading strategy is a calculated way of using options singly or in a combination, in order to make a profit from market movements.
Option strategies can give you a greater profit with less risk compared with the traditional buying and selling of stock.
One vitally important thing to consider when investing is when to get out and how. An effective exit strategy needs to be decided upon in advance, and stuck to without allowing emotions to sway you.
There are many types of option trading strategies that can be applied, depending on your opinion, or ‘prediction,’ of which direction the underlying stock is going to move.
A guideline for picking the right stocks to go with the right options strategies is available by reading “Options Strategies for Different Stock Styles”. The various stock movements are taken into account – bullish and bearish – as well as major moves, or slower, moderate moves, in either direction - and a strategy that can be applied to each of these movements.
Option strategies are the most versatile instrument in the financial market today, allowing you many opportunities to make a greater profit with a limited risk.
Option strategies can be favorable whether movements in the underlying stock are ‘bullish’ (moving up), ‘bearish’ (moving down), or neutral.
Various strategies can be employed during certain options expiration days, such as when “witching hour” occurs on Triple-Witching Days or ”Quadruple Witching days”, where volume and volatility will be a major factor occurring.
Before you buy or sell options, you need a strategy, which in the long run will meet your investment goals. One of the benefits of options is the flexibility they offer- they can complement your portfolio in any way you wish.
One method of helping in successful option strategies is by trading Bollinger bands. These can help you understand certain characteristics of a stock such as the high or low of the day, whether or not the stock is trending, or even if it is volatile or not.
There are many other trading strategies to use with options, some of which are relatively easy to understand and put into practice. Other strategies are more complex and complicated, and their purposes become easier to understand with more experience and knowledge.
With the use of solid trading strategies, options are definitely one of the most dynamic investment vehicles available to traders and investors.
A Simple Option Trading Strategy -
One of the least sophisticated option strategies which can accomplish a market neutral objective with little hassle -- and it's effective -- is known as a straddle.
Straddles are an option trading strategy with which the investor holds a position in both a call and put with the same strike price (at-the-money) and expiration date.
With options, you buy a call if you expect the market to go up, and you buy a put if you expect the market to go down. Straddles, however, are strategies to use when you're not sure which way the market will go, but you believe something big will happen in either direction.
Best of Trading,
Director of Stock Options Made Easy