An integral part of trading in options is to understand the strategies involved in it. Now, most traders are aware of the puts and calls of trading in options. But there are several other nuanced strategies that can be used. Keeping all of that in mind, Tesler has outlined six strategies below that traders tend to resort to when dealing in options. There are many other complicated strategies available as well, but let that be a discussion for another day. And without further ado, let’s get started.
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Call option strategy:
A call option refers to a contract made between a seller and a buyer to buy a particular stock at a specific price until a set expiration date. The buyer of a call contains the right, though not the obligation, to exercise that call and buy the stocks.
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Put option strategy:
Put option gets you an alternative route by taking the bearish position on an index or security. As the trader purchases a put option, they buy the right to sell their underlying asset at the price mentioned in the option. In this case, the trader does not have any obligation to buy the commodity, stock, or other assets secured by the put.
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Married put strategy:
A lot like the protective put method, the married put is about purchasing an ATM (at-the-money) put option in a specific amount to cover the present long position in the stock. In this manner, it is a lot like the call option. It is even known as a synthetic call at times.
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Protective collar strategy:
With the collar, an investor holding a long position in the underlying asset purchases an out-of-the-money (downside) put option, and at the time, writes an out-of-the-money (upside) call option for that same stock.
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Long straddle strategy:
Purchasing the straddle allows you to capitalize on the future volatility but without the need to take bets on whether this move is going to be on the downside or upside – both the directions are profitable. In this case, the investor takes both a put and a call option at the exact same strike prices and expiration based on the same underlying asset. As it involves buying two at-the-money options, it’s costlier than a couple of other strategies.
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Long strangle strategy:
A lot like straddle, the purchaser of a strangle tends to go long on an out-of-the-money call option, along with a put option, simultaneously. It will come with the same date of expiry, but have separate strike prices: The put strike price is going to be less than the call strike price.
It involves a lower outflow of premium than a straddle but also needs the stock to go either lower to the downside or higher to the upside to be profitable.
The endnote
Regardless of the way you choose to go with options, it is crucial to take your time to understand the strategies. If you do it right, options trading can be more profitable than many people think of.
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