There are many different types of option trading strategies that you can can do to take advantage of trading rising, falling or sideways moving financial markets.
Option trading strategies can be created by combining different types of individual options such as by using all call options or all put options (or using some combination of both types) as well as using different strike prices and different expiration dates. Think of it as packaging different options into one package.
With the power and flexibility that different types of options offer as a trading vehicle, you can create all kinds of low-risk, highly-profitable option trading strategies on underlying financial instruments like stocks, etf’s as well as other financial instruments that also have options.
Option Strategies Can Be Flexible As To
- Selecting the type of options (call options or put options, or combination of)
- Picking your own strike prices
- Choosing your own expiration dates
- Setting your desired rate of return
- Trading based on your market outlook (bullish, bearish or neutral)
- Rolling or adjusting option strategies
- Choosing the amount you wish to spend on “debit” spreads
- Choosing the amount of cash you wish to have deposited up-front to your brokerage account from “credit” spreads
- Taking advantage of volatility skews by using different options
Types Of Option Strategies
- Buying options
- Shorting options *
- Buying lower strike options together with Shorting higher strike options
- Shorting lower strike options together with Buying higher strike options
- Using some combination of different strike prices and (or) expiration dates
Once you understand how option strategies are created, you will have the ability to make changes to them (if needed) such as with rolling or adjusting your option positions, or flipping a “horizontal” option spread into a “vertical” option spread, or making some other option adjustment to possibly enhance profit potentials or mitigate any potential losses.
What Is Your Market Outlook
Since option trading strategies can be created to trade rising, falling or sideways moving markets, you can create one to fit your own respective market outlook by using any of the following ones:
Rising Outlook (Bullish):
- Buy a Call
- “Short” a Put *
- Bull Call Spread (see how to create a Bull Call Option Spread to make a 100% return in 30 days)
- Bull Put Spread
- Diagonal or Calendar (Bullish) Spreads
Falling Outlook (Bearish):
- Buy a Put (to learn more see How Do Put Options Work)
- “Short” a Call *
- Bear Call Spread
- Bear Put Spread
- Diagonal and Calendar (Bearish) Spreads
Sideways Outlook (Neutral):
- Writing a Covered Call
- Iron Condors
- Butterflies
- “Short” Straddles and Strangles *
These option trading strategies are very powerful and can easily generate big profitable returns while only risking a very small amount of your trading capital for most of them.
So, no matter if you are trading directional (or non-directional) option strategies, there is sure to be one that will fit your respective market outlook.
* (advised only for professional options traders)
Summary – Option Trading Strategies
Once you know how to create different types of option trading strategies and match them to your respective market outlook, they can become instrumental to your overall trading plan. This can really add depth and dimension to the way you trade by creating all kinds of low-risk, highly-profitable option trading opportunities in all kinds of different moving markets.
