Options Trading Strategies to Consider
If you plan to get started on investing in options or if you are already investing and want to maximize your chances of making successful investments, it is a good idea to consider options trading strategies and adopt one for yourself. You do not want to just trade options based on emotion or feeling alone, as this type of trading can be riskier than other types of investments unless you have a good idea of what you are doing. This is why it is smart to research the various strategies, pick a one, and be consistent in using that technique when trading.
When you buy an option, you buy the right to purchase a share of stock at a certain price within a certain time frame. A bullish trading strategy should be used if you believe that the stock is going to increase in value and its price will go up.
There are lots of different bullish strategies, but the simplest one is simply to buy calls when you think the stock price is on the rise. You'll need to decide if you are moderately bullish, which means you think the stock will go up just a little bit. Most moderately bullish investors will set a target price that is a little bit higher than the existing stock price. This caps your profit but also reduces your risk.
You can also opt to use a bull call spread by buying a call option with a low price and then selling another one with a high price. This means that you limit your losses more since if the stock goes down in value, you still have the option to buy at the lower call price.
Bearish Options Trading Strategies
If you believe a stock is likely to go down in value, then you can use a bearish strategy. This is the reverse of the bullish strategy. Again, the simplest way to adopt a bearish strategy is just to buy a put option, which guarantees the right to sell a stock at a certain price. If the stock goes down in value, you make money. A bear call and put spread can also be used, just like a bullish call and put spread, if you want to limit loss and minimize risk.
Choosing Options Trading Strategies
These are just two examples of very simple options trading strategies. There are many different strategies to consider, some of which are more advanced and more indepth than others.
For an extensive list of the various strategies available and even more information on options trading, visit Simpler Options.com and get started trading today.