Powerful Options Trading Strategies Every Trader Should Know

Merchants who use Option derivatives can only sell or buy securities before their expiration and are not obligated to do so. Also, you don’t own the underlying stock when you own an option. In this trading, options represent 100 shares of the underlying security, whether it is a bond, commodity or currency.

If you feel like Options trading, you might be wondering where to start. It is not a simple process, as it requires some know-how. Therefore, it is essential to know the different strategies that revolve around profit. Here you will learn powerful options trading strategies that will help you earn more profits:

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 expiration when you own the underlying asset. This strategy works when a long position in a stock has made substantial gains. It offers downside protection, but the trade-off is that you might be forced to sell shares at a higher price and have to give up the possibility of additional profits.

Long gap

You must simultaneously purchase a call and put option on the same underlying asset to use it. Make sure the strike price and expiry dates are also the same. This strategy works when you think the price of the underlying asset is moving within a specific range, but you’re not sure what direction it will take. Theoretically, it allows unlimited winnings. The maximum loss you suffer is the cost of both Options and Futures.

Long choke

You buy an OTM call and put option in this strategy, but the strike price is different. Make the purchase simultaneously with the same expiration date. It is used when you think the price of the asset is going through a big move, but you are not sure which direction it will take.

iron condor

Here, you simultaneously hold a Bull Put and Bear Call spread. The iron condor is built when you sell an OTM put and buy an OTM put at a lower strike price. When you sell an OTM call and buy an OTM call at a higher strike price, each contract must have the same expiration date and the same underlying asset. As a rule, the Call and Put sides also have the same spread width.

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