Choices are very flexible and no-obligation financial instruments used to benefit from different market conditions and/or to limit trading risks and exposure. Options strategies are methods to achieve specific options trading goals and to better utilize different opportunities and market conditions option trading tips. Unlike most other financial instruments options enable traders to make money from any market conditions even in fast downtrends and in no price changes.
You will find numerous different options trading strategies available now and new ones are invented everyday. Some of them are widely popular and followed but some others are trading secretes of some persons or groups. You can find no strategies to make money from every market condition; in fact for successful implementation, a lot of them require some prerequisites. Options trading strategies may be simple which require normal trading platforms and include a couple of contracts/traders OR could be complex which require sophisticated trading systems and involves many contracts/trades.
Depending on the nature and implementation, options trading strategies could be categorized to 3 main groups as,
1. Bullish: These are strategies which are utilized when the underlying product price is likely to go up. In other words the successful implementation requires price increase of the underlying product. Examples include short put, long call, synthetic long stock, bull spread, etc.
2. Bearish: They are utilized when the underlying product price is likely to decrease and successful implementation requires price decrease. Examples include long put, short call, bear spread, synthetic short stock, etc.
3. Non-Directional or Market Neutral: These strategies are utilized on expected price volatility of the underlying instrument and are not rely on price ups and downs. Success with your is achieved when the expected price fluctuation is achieved or not-achieved. Examples include straddles, strangles, butterfly, etc. Non-directional strategies may be further divided to two as bullish-on-volatility and bearish-on-volatility.
Along with the above mentioned three main categories two other categories also exists which are event-driven and stock-combination strategies; the former expects/considers a certain event like mergers and takeovers and try to profit from that and the later is complex tactics offering combinations of trades or option types.
There are no options trading strategy that suit every trader. In fact a good choice should rely on many factors just like the underlying product, market conditions and volatility, trader experience, usage of quotes and sophisticated trading systems, brokerage service trader using, trader portfolio size and risk tolerance, long-term or short-term trading goals, and money management. Although, many of today’s trading systems are pre-loaded to support many popular strategies it is a very good idea to learn the maximum amount of strategies as possible and to make them easily accessible to you. The general recommendation is that to implement simple one when you’re a novice and switch to more complex ones as you can know more about different options, industry and its movements.