Options strategies abound for the options trader. Options are highly flexible trading instruments and they lend themselves to many different money-making strategies. This is one reason why they are so attractive to so many people. There are options strategies to fit any investor. You just need to know about them in order to be able to use them.
*Long Calls--These options strategies are used in definitive bull markets. This is probably the first options trading strategy that you should learn if you are new to the game. Here, you simply buy an options contract that leverages an underlying asset which you believe is going to probably rise in value before the contract expires. When you buy a call option, you get the right, without any obligation your part, to buy the asset at the price that it carries at the time of contract purchase at any time before the contract expires. By going "long", you are holding on to this contract until the asset prices rises enough where you would buy it at a nice profit.
*Long Puts--These should probably be the options strategies that you learn next. These are used in bearish markets. Puts give you the right, but not with any obligation, to sell the underlying asset at the price it carries at the time of the contract's purchase at any time before the contract expires. When you go "long" with a put option, you are definitely anticipating that the price of the stock is going to go down--and therefore by selling it at today's price when it goes down in the future, you will make a profit.
*Covered Calls--These are probably the most widely used options strategies after long calls. This is also known as the "buy-write" strategy. Here, you hold a long position in the underlying asset while you write--that is, sell--call options on that same asset at the same time. You would use this options strategy when you are less certain about the asset's probability of rising during the life of the contract. By having a long and an effectively short position at the same time, you are hedging your bets, and you are also giving yourself the possibility of generating profits from the contracts' premiums.
*Married Puts--This options strategy is similar to the covered call, except here you hold a long position while simultaneously buying put options on the same asset in which you are long. This is important among options strategies because it is excellent to use during highly volatile markets. Potential gains or losses here are produced by the net effect of your long position in both the put and the undergirding asset. With this strategy you establish a floor so that you could realize unlimited profits but, simultaneously, you do limit your potential loss. If the asset's price falls below the strike price before the contract's expiration, you would would exercise your put option and sell the asset at the strike price. But if its price rises above the strike price, you don't exercise your option; instead you sell the asset at the higher price and generate a profit if the asset's price is higher than the overall cost of the position.
These are a few of the most basic options strategies. To learn more of them, subscribe to a good options advisory newsletter.
