Here’s the deal: if you don’t start investing until 45, you’ll have to save three times as much money as if you started saving at 25 years old. That’s why it’s never too early to look into options trading for beginners, especially if you’re still young. New to options trading? Want to get the results you’re looking for? Check out this list of seven options trading strategies that work!
1. Covered Call Writing
Curious about covered call writing?
One of the biggest options trading tips to master is to write a “covered call” to investors. First of all, a “call” permits owners to buy a specific amount of shares for a specific price.
When you write a covered call, you can sell a “call option” to someone else, which gives you the right to buy stocks at a pre-determined price point. Usually, whoever buys the call will pay premium cash for it too.
2. Bull Call Spread
If you’ve never heard of a bull call spread before, then we’ve got you covered. Basically, options traders can buys calls at a lower strike price and sell an equal amount of calls at a higher strike price. Then, the options trader gets premium cash for the sale of their lower strike price options.
Also known as long call leg trading, buying calls at a lower strike price is a great technique for first-time traders. Otherwise, selling calls with a higher strike price is known as short call leg trading.
3. Bear Put Spread
For those of you are new to options trading, you might not be familiar with bear put spread trading. If that’s the case, allow us to enlighten you.
A bear put spread is the opposite of a bull call spread. Contrarily, a bear put spread is when traders buy puts with higher strike prices and sell puts with lower strike prices at the same time. Instead of shorting shares, you’ll be able to limit financial risks. This lets you manage your “risk/reward” profile easier than ever.
When is the trading tactic used?
Bear put spreads are great to use when you predict a moderate decline in your current assets. Rather than only buying one put, you can try to make more money by selling puts with lower strike prices.
4. Protective Collar
Another option for trading strategy is called protective collar trading. This helps investors lock in any gains from assets that have significantly appreciated. Therefore, using this type of protective collar can help you to avoid capital gains taxes as well.
To get familiar with this kind of trading, there two parts to understand:
- Locking in your gains
- Minimizing potential losses
Not only does this have significant upside potential, but it also has minimal downside risk. But what should you do if you predict a downturn in the market?
Instead of selling stocks that have appreciated, use a protective collar to avoid paying massive capital gains taxes.
5. Long Straddle
To achieve a long straddle, the options trader has to have the exact same amount of calls and puts with the same expiration dates and check prices. This is a smart way to play on market volatility.
In case you didn’t know, there are two types of straddles:
- The long straddle
- The short straddle
The purpose of long straddles is to let options traders profit whether the market is good or not. However, it’s important to note this is a somewhat expensive way to play. On the bright side, you’re almost guaranteed to earn a profit over time.
6. Short Straddle
Similar to long straddles, the short straddle lets you sell the same number of call and put strategies at the same expiration date and strike price. By selling these options, the trader can also collect cash premiums along the way as well.
If you decide to go this route, it’s a wonderful option for those who hope the market remains the same for a set amount of time. Whether the market moves in a good or bad direction, you’ll be able to collect cash premiums no matter what.
In addition to this, short straddles can provide a big amount of returns too. But keep in mind that this will exposes options trader to an uncertain amount of risk as well.
7. Iron Condor
What is an iron condor, you ask?
As a complex strategy, this may not be the best fit for beginners. Nevertheless, that doesn’t mean that it’s not a popular option for traders everywhere. If you can get the hang of it, though, you might be able to make consistent profits when your assets stay consistent.
Here’s the thing. There are two credit spreads created with iron condor trading. These “wings” include:
- The call credit spread
- The put credit spread
Call credit spreads involve traders creating credit spreads that lay above market prices. On the other hand, put credit spreads involve traders to create credit spreads below market prices. As long as you keep your asset price between these two ranges, you should be able to generate significant profits from these credit spreads.
Learn More About Options Trading Strategies
Having a hard time mastering options trading strategies and ideas?
When it comes to options trading strategies that work, we are practically the experts.
From covered call writing to iron condor trading, there are tons of options out there to learn about. Once you decide what level of risk you are willing to take, your only concern will be choosing the right strategy for you!
Want to learn more about options trading strategies? Don’t hesitate to contact one of our experts today!