SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

7 Best Options Strategies


Options are instruments that are ideal for traders who prefer to trade with limited risk but want to enjoy the luxury of unlimited profits. Though this prospect seems unreal at first glance, options do indeed provide you with that luxury though things aren’t so straight with this instrument.

We would advise traders to first trade spot prices and once they are well versed with that, they can then graduate to options which are great instruments to trade with as long as you know what you are doing. If you have a forecast for EURUSD, it is easy for you to trade it without a time limit (which is the privilege that spot prices give you) rather than trying to trade it with a time limit which is what options make you to do. So options have the advantage of unlimited profits but they expire within a specific time limit and if the traders can add this time dimension to their trading, they can easily master the options concept irrespective of which instrument or market they trade in.

 

There are a variety of options trading strategies that you can use but here we list some of the best keeping both the risks and the returns in mind while discussing them

  1. Covered Call – One of the simplest and most straightforward strategy is the covered call where you sell (write) a call options and at the same time, you buy the instrument in the spot market as well. Let’s say that you have a EURUSD forecast that says that it will continue in a range for the rest of the year, then you can buy EURUSD in the spot market and sell the equivalent amount in the form of calls in the options market. By writing the option, you protect yourself of losses when EURUSD falls and you also gain that little extra money which you get as the premium when you write the call. The risk is practically zero and you use this when your EURUSD forecast is neutral.
     
  2. Bull Call Spread – In this, the trader buy options at a particular strike price and sells the same number of options at a different strike price. Everything else in this strategy, like the instrument and the expiry month, is the same. The trader takes this strategy when he is bullish about the underlying so that he makes more by the calls that he has bought than what he has sold. It’s the same with Bear Put spread as well if the trader is bearish with the underlying.
     
  3. Long Straddle – This strategy is used when the trader is sure that the price of the underlying will move significantly but is not sure in which direction it would move. So, he buys both a call and a put option with the same strike and expiration month. So, when the underlying moves more than the total premium that he has paid, he begins to make a profit.
     
  4. Iron Condor – If you have a fairly trustworthy analysis of EURUSD but still want to protect yourself with low risk, then this strategy might be useful though it is pretty complicated. This strategy involves a combination of 2 different strangles while holding both long and short positions on the same. As it sounds, this strategy is a complex one and should not be used unless the trader fully understands the same.
     
  5. Writing Calls – This is a fairly straightforward options strategy but fraught with risk. If your forecast for EURUSD says that the price will remain neutral or go down, then it would be useful to write an out of the money call option. As long as the strike price is chosen to be far away from the current price and the forecast is proved correct, you should be able to make some regular income using this. But as you can see, the risk is unlimited in this strategy.
     
  6. Collar – This strategy is just a covered call position but you just add a put as well into the mix so that it protects the trader against the fall of the underlying. This also causes the returns to become limited but for those who are concerned about the risk would gladly take this strategy.
     
  7. Strangle – When the put in the straddle has a lower strike price than the call and when both are out of the money, then it is called a strangle. Again, the potential losses could be unlimited and so this kind of a strategy should be used only when the trader forecast for the underlying, say the EURUSD, is that it will move a lot during the expiration month.

 

We have listed out a variety of options strategies from the most conservative to the most risky ones. As any seasoned trader and investor would know, the return is always proportional to the risk as well and it is upto the investor to decide what kind of a risk he can take and then opt for the correct strategy and ensure that he executes it correctly as well so that he can enjoy good profits with little effort which is what options provide you.

 

This is a guest article from FX Empire.

 

FX Empire is a financial portal offering news and analyses to professional traders, available in 15 languages. Our goal is to provide traders with all necessary trading tools – technical & fundamental trading strategy, opinions from experts in the field, charts, tools, and streaming news of the financial markets. FX Empire offers in-depth information about tens of thousands of financial instruments, including stocks, currency pairs, commodities, indices, bonds, ETFs and more.
 

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • IVolatility Tools: Advanced Options

    Perhaps the toughest part of trading options is figuring out what to do. For this we have advisors, seminars, newsletters and more. Yet, one tool that all investors need, but few utilize adequately, is data. This concept is parroted across the industry, but how does the average investor move from the desire to utilize data to the actual practice?

    By Levi Ioffe,

    • 2 comments
    • 430 views
  • A Global Equity Put Write Portfolio

    Many that sell equity market put options focus on the S&P 500 (SPX, XSP, SPY). Some will add small caps by selling puts on the Russell 2000 (RUT, IWM). An investor could also make their put selling strategy globally diversified by adding MSCI EAFE (EFA) and Emerging Markets (EEM).

    By Jesse,

    • 0 comments
    • 351 views
  • The Random Walk Hypothesis

    The “random walk hypothesis” (RWH) is one idea about how stock prices behave – but only one of many. It is a theory promoted in academia and believed in my many, but not so much by traders involved with handling real money. Theories aside, is the market truly random?

    By Michael C. Thomsett,

    • 0 comments
    • 369 views
  • How To Trade Options Successfully

    I’ve now been trading options for over a decade and been associated with Steady Options for seven years – hard to believe.  Over that period, I’ve learned quite a bit about option trading; how to improve, what not to do, and generally how the option markets work. I’m still learning.

    By cwelsh,

    • 3 comments
    • 688 views
  • January 2019 Performance Analysis

    No one likes losing money, and no one likes hearing "excuses". However, in an effort to be fully transparent, solicit feedback, and to improve our own performance, we're writing this article to do a further breakdown of the losses which our model portfolio incurred in January 2019. 

    By Kim,

    • 17 comments
    • 1,487 views
  • Island Clusters as Strong Reversals

    Options traders constantly seek the elusive reliable reversal signal. A few unusual but strong reversals are worth looking for, and their patterns reveal likely exceptional timing for opening or closing option trades. One example of this exceptionally strong signal is the island cluster (or, island reversal).

    By Michael C. Thomsett,

    • 0 comments
    • 445 views
  • What’s Wrong With Your 401(k)? (If anything)

    There currently are over sixty million Americans that are active 401(k) participants, and well over 500,000 total active 401(k) plans offered by employers in the United States.  Despite these high numbers, usages could be higher, as the US Census Bureau estimates that only 41% of all employees with access to a 401(k) plan utilize it, with even less funding it fully.

    By cwelsh,

    • 0 comments
    • 528 views
  • Upcoming Decay of Options

    I am on the hunt for a short volatility position for three main reasons. First, the market’s wild swings have, for the time being at least, diminished. Second, option activity has dried up as my options barometer continues to be stuck in the 4 – 6 range as traders are not making big bets in either direction.

    By Jacob Mintz,

    • 0 comments
    • 628 views
  • The Scientific Process of Increasing Expected Returns

    For many US investors, the "base case" for equity investing is US large cap stocks, most commonly benchmarked as the S&P 500. You could absolutely do far worse than owning these 500 great US companies, and the weight of the evidence suggests that most actively managed mutual funds that benchmark themselves against the S&P 500 index have in fact done worse.

    By Jesse,

    • 0 comments
    • 1,083 views
  • Those Golden and Death Crosses

    The use of moving average (MA) for predicting future price behavior must be undertaken cautiously. MA is a lagging indicator, so the question must be: Can a lagging indicator provide guidance for the future? Yes. The use of two MA lines and how they interact is a reliable form of reversal indicator.

    By Michael C. Thomsett,

    • 0 comments
    • 733 views

  Report Article

We want to hear from you!


There are no comments to display.



Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs