Long Put. Fig Leaf. Long Call Spread.

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Long Put Spread. Short Call Spread. Short Put Spread. Long Straddle.

Long Strangle. Iron Butterfly. Iron Condor. Short Call. Short Put. The maximum reward in call writing is equal to the premium received. Often times, traders or investors will combine options using a spread strategy , buying one or more options to sell one or more different options. Spreading will offset the premium paid because the sold option premium will net against the options premium purchased. Moreover, the risk and return profiles of a spread will cap out the potential profit or loss.

Spreads can be created to take advantage of nearly any anticipated price action, and can range from the simple to the complex. As with individual options, any spread strategy can be either bought or sold. Investors and traders undertake option trading either to hedge open positions for example, buying puts to hedge a long position , or buying calls to hedge a short position or to speculate on likely price movements of an underlying asset. The biggest benefit of using options is that of leverage. The investor is bullish in the short term on XYZ Inc. Our investor can buy a maximum of 10 shares of XYZ.

Now, instead of buying the shares, the investor buys three call option contracts. When the broker's cost to place the trade is also added to the equation, to be profitable, the stock would need to trade even higher. These scenarios assume that the trader held till expiration. That is not required with American options. At any time before expiry, the trader could have sold the option to lock in a profit. Or, if it looked the stock was not going to move above the strike price, they could sell the option for its remaining time value in order to reduce the loss.

Here are some broad guidelines that should help you decide which types of options to trade. Are you bullish or bearish on the stock, sector, or the broad market that you wish to trade? Making this determination will help you decide which option strategy to use, what strike price to use and what expiration to go for.

Is the market calm or quite volatile? How about Stock ZYX? As you are rampantly bullish on ZYX, you should be comfortable with buying out of the money calls.

Option Trading Strategies to Protect Profits...

You decide to go with the latter since you believe the slightly higher strike price is more than offset by the extra month to expiration. In this case, you could consider writing near-term puts to capture premium income, rather than buying calls as in the earlier instance. As an option buyer, your objective should be to purchase options with the longest possible expiration, in order to give your trade time to work out.

Conversely, when you are writing options, go for the shortest possible expiration in order to limit your liability. Trying to balance the point above, when buying options, purchasing the cheapest possible ones may improve your chances of a profitable trade. Implied volatility of such cheap options is likely to be quite low, and while this suggests that the odds of a successful trade are minimal, it is possible that implied volatility and hence the option are under-priced.

So, if the trade does work out, the potential profit can be huge. Buying options with a lower level of implied volatility may be preferable to buying those with a very high level of implied volatility, because of the risk of a higher loss higher premium paid if the trade does not work out.

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There is a trade-off between strike prices and options expirations , as the earlier example demonstrated. An analysis of support and resistance levels, as well as key upcoming events such as an earnings release , is useful in determining which strike price and expiration to use. Understand the sector to which the stock belongs. For example, biotech stocks often trade with binary outcomes when clinical trial results of a major drug are announced.

Deeply out of the money calls or puts can be purchased to trade on these outcomes, depending on whether one is bullish or bearish on the stock. Obviously, it would be extremely risky to write calls or puts on biotech stocks around such events, unless the level of implied volatility is so high that the premium income earned compensates for this risk.

How to make profit using bullish option trading strategies?

By the same token, it makes little sense to buy deeply out of the money calls or puts on low-volatility sectors like utilities and telecoms. Use options to trade one-off events such as corporate restructurings and spin-offs, and recurring events like earnings releases.

Stocks can exhibit very volatile behavior around such events, giving the savvy options trader an opportunity to cash in. For instance, buying cheap out of the money calls prior to the earnings report on a stock that has been in a pronounced slump , can be a profitable strategy if it manages to beat lowered expectations and subsequently surges. Investors with a lower risk appetite should stick to basic strategies like call or put buying, while more advanced strategies like put writing and call writing should only be used by sophisticated investors with adequate risk tolerance.

Buyers: Who Wins? Trading Techniques. Your Privacy Rights. Kim is extremely knowledgeable. Every trade is discussed and documented. The educational value far outweighs the price of admission. It's responsible for my trading success. It really was a life changing decision.

Best options trading strategies and tips

Without SO, I would never have learned what I've learned. His successful trading becomes your successful trading - no reason you can't succeed. Kim is very knowledgeable about different options trading strategies. Upcoming trades are discussed and dissected, optimal entries and exits are determined. Over the long-term small cap value stocks have outperformed large cap growth stocks, although not over more recent history. By Jesse, Thursday at PM. However, cash savings are not your only option if you have money left over at the end of the month, and there are a lot of other options that could bring greater returns.

By Kim, March The jade lizard is one of those bullish spreads with limited maximum profit, and no risk on the upside. It is a combination of a short put with a short call spread.

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The credit this creates is higher than the span of the spread. To set this up, two actions are required:. By Michael C. Thomsett, March As a trader, you may find yourself frequently trying to ignore or rationalize emotions.