Why Use Option Trading Strategies?

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Many opportunity seekers are attracted to options trading as they have heard stories making promises of fast profits. The problem is that these traders come in thinking of nothing more than stuffing their bank accounts full of cash in a short period of time. While this scenario is achievable the odds are certainly going well against you. In most cases achieving big profits in a short time period involves an extremely high risk options trading strategy. The key to your success is finding a reliable strategy and mastering it. It is far better to pull off consistent gains rather than trying to hit a home run. Once you know one strategy, well you can learn others.

Below are some of the options trading strategies that you may consider.

Popular strategies to trade options include:

  • Bullish on volatility
  • Bearish on volatility
  • Selling Credit Spreads
  • Bearish strategies
  • Selling Covered Calls
  • Bullish strategies
  • Neutral or non-directional strategies
  • Calendar Straddle
  • Strangles

The above list is in no way an exhaustive list, there are plenty of other strategies that you may employ. The purpose of this article is to just give you a small taste of some of the possibilities. Below I expand on a few.

Selling Credit Spreads – If you are looking for a strategy that does not involve marrying your stock options career, then this is one you could consider. There is nothing worse than following a strategy that requires you to monitor the market for every minute of the trading day. You can complete what is involved with this strategy in around an hour a week and if done correctly you might be able to increase your portfolio by around 10-15 per cent monthly. They are great returns that really put to shame what the banks are offering. To execute this strategy you need to know how to carry out a trend analysis on the market. Of course the scope of this article does not allow me to cover this further. You are best advised to join the mailing list on this site.

Bullish Strategy – If you are expecting the underlying stock of an option to increase then you could go with this strategy. The Bullish options trading strategies are brought into play when you as the trader expects the underlying stock price to increase in value. You need to consider just how high the stock price is likely to go and within what time frame. The most likely strategy choice for a bullish trader is a simple call buying strategy. This is quite popular with beginners. Other bullish strategies include Covered Straddle, Bull Calendar Spread and The Collar.

Complex Strategies – These include such things as iron condors, butterflies, straddles and strangles. Just where do they come up with the names used in strategies for options trading? Strange aren’t they? The ones I have listed here if followed correctly are generally low risk while at the same time being highly likely to be profitable. The disadvantage is that they are expensive, either due to the fact that you are trading expensive options or thanks to high brokerage fees which come about due to the number of trades involved.

You should remember that options are quite versatile trading instruments. With such great flexibility this is where many people get it wrong. They think that the more complicated an option trading strategy is the more successful it can be. In fact it can be quite the opposite. The more complicated the strategy the more open you could be to risk while at the same time limiting profit potential.

As with any strategy you employ with your options trading business and treat it with respect. Don’t trade live until you have given it a good test using a practice account. Only then should you consider running with it using your real money.

When learning how to trade options it is always advisable to only use risk capital when trading with real money. This means only use money that you can afford to lose if you have trades that go against you. There you go that just touches the surface of options trading strategies. Of course you will want to learn more and then select a strategy to trade your options using a test account. From there who knows?

Always remember to not let things get out of hand. If you are learning a new strategy only trade with one contract at a time. If you go overboard you will soon find yourself out of control and headed towards disaster. Options trading is not a race. You have time on your side and you should make the most of it. The market will still be here tomorrow.


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