Options trading is all the rage in India. Put simply, a financial option confers traders the right to buy or sell an underlying asset, like a basket of stocks, on or before a specific maturity date. Options strategies can be very easy or hard to understand, and they come with many different payoffs and sometimes strange names. Call options are rights to buy, while put options are rights to sell. The best options trading strategies fall under one of these two types.
Best options trading strategies that every trader should know
If done right, the best options trading strategies help to build wealth over time. Anyone can buy or sell an underlying object, like a company or even an index, at a set price and during a specific period by signing an option contract and paying a fee to the seller. You can consider some of these excellent options trading strategies.
Bullish options trading strategies
Simply put, positive options tactics only work when the market is rising. Bullish options methods are used by investors who are sure that the market or a specific stock will go up. When buyers adopt this strategy for a bull market, they usually look at the asset’s support and resistance levels and pick the best call price. You could lose much money if the market or stock(s) underperform.
1) Bull Call Spread
The strategy involves two call options. It involves buying at-the-money calls and the best options selling strategy with the same number of out-of-the-money calls repeatedly. Here, you purchase call options at a predetermined strike price and also sell the same number of calls of the same asset at a higher strike price.
2) Bull Put Spread
The method is employed when the trader expects the price of the underlying asset to rise moderately. Here, the investor sells one put option while purchasing another at a lower strike price, both with the same expiration date. This is one of the best options trading strategies.
3) Bull Call Ratio Backspread
This is a bullish options trading strategy that includes buying and selling call options.
4) Synthetic Call
The method employs put options and stock shares to recreate the performance of a call option. Essentially, you buy an underlying asset and on top of that, buy a put option on that asset. This is considered a safe options trading strategy.
Bearish Option Trading Strategies
Some traders make money when the prices of assets go down. This is possible with bearish methods, one of the best options trading strategies. The method offers traders different ways to profit from falling prices. Each strategy has a different mix of risk and return. A trader’s market view, risk tolerance, and financial goals determine which strategy to employ. As with any trading plan, this one needs to be carefully thought out, focusing on risk management, with a deep understanding of options strategies.
5) Bear Call Spread
Selling and buying a call option with a cheaper call price on the same base asset and expiration date is part of the bear call spread strategy. People who buy or sell Call Options are paid a premium. People who sell Call Options are sent a premium. Because of this, the cost of your investment goes down. The method is less risky since the return is only the difference between the price paid and received.
6) Bear Put Spread
To use this technique, the investor must buy a put option that is in the money (higher) and sell a put option that is out of the money (lower) on the same asset. Both options must expire on the same date. The general result of the Bear Put Spread plan is to make it cheaper to buy a put and more expensive to sell one. An opposing view is needed for this best options trading strategy because the owner will only make money if the stock price or index goes down.
7) Strip
It is best to use this approach when the market is volatile because it has a downward bias. The plan is based on a net debit approach, which differs slightly from the Long Straddle approach. You make one small change for a negative bias and go long on the put. In this case, too, the return can be huge. People who buy puts and calls may lose the most money if the underlying asset’s price ends up on the strike price of those options.
8) Synthetic Put
The best options trading strategy within the synthetic put is a short stock trade combined with a long call option on the same stock to show a long-put option. A person who doesn’t own a stock buys a call option at the money on that stock. This is done to keep the price of the stock from going up. If you sell the underlying at the strike price plus the call premium, you will only lose as much as the strike price.
Neutral Options Trading Strategies
When stock market prices move slowly or sideways, with no strong thoughts of either buying or selling, it is called a neutral trend. Several factors have led to this balance, including the market’s desire to reach balance and keep gains or losses in check before a significant change in direction. The lack of crucial financial news or data reports also plays a role in this neutrality.
9) Long Straddles & Short Straddles
A simple market-neutral strategy called the long straddle involves buying an in-the-money call and putting options with the same base asset, strike price, and expiry date. With this approach, you can make as much money as you want and can lose a certain amount.
With the same base asset, strike price, and expiry date, the short straddle is made up of selling both At-The-Money call and put options. With this option buying strategy, the maximum loss is the extra earned, and the maximum return is the same.
10) Long Strangles & Short Strangles
It’s like the straddle approach, but you buy out-of-the-money calls and put options instead of straddle options. Using the long strangle approach, you buy one Out-Of-The-Money call option and one Out-Of-The-Money put option. You can make as much money as you want, but the most you can lose is the net charge.
To do a short strangle, you sell one put option out of the money and one call option out of the money. The most significant loss is infinite, while the biggest gain equals the bonus.
Intraday Option Trading Strategies
A person who thinks the underlying product’s price will increase might choose a call option. Someone who believes the price will go down might choose a put option. Understanding these basics is essential before trying out some of the best options trading strategies. Trade tactics for intraday options focus on short-term price changes during a single trade session. To take advantage of immediate price changes with these tactics, you must keep an eye on them and make quick decisions.
11) Momentum Strategy
If you choose the momentum approach, you look for assets with solid price trends going up or down and then get into action to make money from the momentum. To make money from short-term price changes, you must act quickly and handle your risk carefully.
12) Breakout Strategy
Using assets nearing necessary support or resistance levels as a guide, the breakout strategy waits for prices to break out of these levels, indicating possible price changes, and then enters positions when prices do so. Traders who use this approach want to make money from significant price changes after a time of stability.
13) Reversal Strategy
The reverse approach involves finding assets that have been overvalued or oversold and placing trades ahead of price changes. For this approach to work, you must use trend analysis to find market turning points.
14) Scalping Strategy
When you employ the scalping technique, you make several deals daily to make money from small price changes. Scalpers try to make money off small changes in prices and only hold options for a short time.
15) Moving Average Crossover Strategy
The moving average crossing approach looks for possible entry and exit points by comparing short-term and long-term moving averages. The idea behind this approach is that when two or more moving averages cross over each other, it can mean that the market direction is changing.
16) Gap and Go Strategy
Look at stocks without any pre-market volume should you choose to use the gap-and-go approach. The starting prices of these stocks are not the same as their ending prices from yesterday. A gap up means that the price of a stock opened higher than its ending price the previous day. When this doesn’t happen, it’s called a gap down. Daily buyers find these stocks and buy them using this method, hoping the gap will close before the market closes.
Conclusion
It’s important to remember that each trader’s method is different and constantly changing. Even though these best options trading strategies may give you a good start, it’s essential to keep learning and adapting to the changing market conditions. Combining an online account with your trade tools can speed up the process and make handling your finances easy. Traders can be successful in options trading if they manage their risks well, follow a focused plan, and use an online account for ease of use.
