Best Option Trading Strategy

Best Option Trading Strategy
By www.Options-Trading-Education.com

http://www.options-trading-education.com/24463/best-option-trading-strategy/
Option trading strategies can be
simple and they can be complex.

The best route for beginners is to stick
with the basics.

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Here is what Futures Magazine had
to say about options strategies for
beginners.

In a covered call (also called a buy-
write), you hold a long position in an
underlying asset and sell a call
against that underlying asset.

Bull call spreads and bear put
spreads also are called vertical
spreads because they occur in the
same month and they have two
different strikes.

Another strategy used in options is
calendar, or time, spreads.

In a calendar spread, you establish
your position by entering a long and
short position at the same time on the
same underlying asset, but with
different delivery months.

The iron condor is a strategy that can
be a good introduction for beginning
options traders to option selling.

It can be a relatively safe way to sell
options because you can’t lose on
both sides of the trade.

We believe that the best option
trading strategy of these four for
beginners is the covered call.

Covered Call Option
Strategy

According to Investopedia a covered
call is

often employed when an investor has
a short-term neutral view on the
asset and for this reason hold the
asset long and simultaneously have a
short position via the option to
generate income from the option
premium.

This is also known as a “buy-write”.

The beauty of a covered call is that
you never lose any money in the
trade.

If the stock goes up in price the buyer
will execute the contract and you
might lose out on some gains but you
get the premium.

And if the stock stays flat or falls in
value you keep the stock and get the
premium.

Why Use an Option
Trading Strategy?

If you are sure that shares of XYZ
Corporation will go up in the near
future you will buy a call on the stock
and if you believe that they will fall in
the near future you will buy a put.

But what happens if your analysis is
wrong?

The best option trading strategy is one
that increases your odds of making
money and limits your downside risk.

A useful strategy in a volatile market
is a long straddle.

A long straddle is buying both a call
and a put on the same stock with the
same expiration date.

In a long straddle options strategy
the worst a trader can do is lose the
cost of the premiums paid for the call
and the put if the stock does not
change price.

However, this options trading
strategy has potentially unlimited
potential if the stock price changes
significantly.

The risk in this case is limited to the
two premiums and the advantage is
that when you do not know which way
the market will move you are covered
in both directions.

Other option trading strategies use
mixtures of calls and puts, buys and
sell, in order to cover the cost of the
trade with premiums on one side
while aiming for profits on the buy
side.

More complicated strategies are often
constructed to take advantage of
market inefficiencies but are best left
to experienced traders.

Best Option Trading Strategy

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