Trading in Options is one of the most popular investment avenues especially amongst traders that aim to gain from drastic price fluctuations. However, investments in options call for thorough knowledge, technical information and one has to be well-versed with market conditions that are subject to change from time to time. It is no secret among the traders that it is best to stick to the known strategies while trading in Options. Most strategies to trade in options are based on two types of options, the call, and the put. Let’s understand the popular strategies to trade in Options.
1. Don’t judge a stock based on the entire stock market conditions
Even if the market as a whole is going up, it doesn’t necessarily mean that every stock will be performing at its peak. Hence, it is essential to know how individual stocks are performing, especially the ones you are planning to enter a trade-in. When in doubt, it is best to follow a conservative approach than to lose a substantial amount to the trade.
2. When the market is bullish
If you are sure about the upswing in the market, opt for long calls. The long call is when you earn the right to sell or put the stock in the future for a predetermined price. This strategy gives you a chance to book a windfall of money, a far bigger amount than initially invested.
3. When the market is bearish
If you expect a downfall in the market, you can opt for long puts. Long put refers to a put option with an expectation of a bearish market. In the long put, you are ideally betting on the tumbling market which can earn you substantial profits if the prediction turns out to be true.
4. When the market is steady
When the market is neutral you can opt for condors and iron condors. Iron condor strategy is when you sell one call spread and one put spread of the same stock. To achieve this you have to sell the call and put spreads. The amount that you accumulated by doing this signifies the maximum profit.
5. When the market is non-bullish
This doesn’t mean that the market is bearish but what it suggests is that the market has a high resistance level. This is when you must choose to bear call spreads, long put time spreads, and covered calls. A bear call spread is when you sell a call option and simultaneously collect the option premium. A covered call is when you sell call options and own the same amount of the underlying security.
6. When the market is non-bearish
The non-bearish market does not mean a bullish market, but it means that it cannot come down because of a lack of sellers. This is when you must opt for bull put spreads. Bull put spread is when you choose one short put with a higher price and one long put with a lower strike price.
So, keep these strategies in mind when you plan to Trade in Options the next time. If you need any expert advice, we are just a call away!
