Option Trading Strategies

Option trading strategies are about the way we construct an option position, or combination of positions, in order to minimize risk and maximise profit while at the same time, taking advantage of our current view of the underlying financial instrument. Options have several advantages over other leveraged instruments such as CFDs or futures. While futures may provide unlimited profits if the underlying goes in the anticipated direction, your losses can also be unlimited if it doesn't. With options on the other hand, your losses are always limited to the amount of your investment, unless you have 'shorted' or sold options without any covering long position. Most brokers won't allow you to do this anyway, unless you have a large amount of capital to cover the potential consequences.

The other advantage with options is that you can construct a combination of long and short positions with different strike prices and either the same or different expiry dates. These extra dimensions of 'strike prices', option expiry dates, together with the ability to sell or 'write' option contracts as well as buy them, is the very thing that creates the opportunity for a number of option trading strategies.

Option Trading Strategies - Contents

1. Range Trading Strategies

Long Iron Butterfly

Calendar Spreads

Butterfly Spreads

Long Condor Spread

Iron Condor Spread

Short Straddle

The Options Straddle

A great Straddle Option Strategy
Once you know the theory, try this

The Option Strangle

Short Iron Butterfly

Delta Neutral Trading Secrets

3. Volatility Strategies

Option Volatility - Implied Volatility (IV)

4. Directional Spreads

Debit Spreads

Credit Spreads

Bull Call Spreads

The Ratio Calendar Spread

Bear Put Spreads

Bull Put Spreads

Bear Call Spreads

Ratio Spreads

Ratio Spread Example

5. Other Strategies

Dow Jones 30 Stocks - A Good Option Trading Strategy

Don't Just Buy Shares - Use Options to Get Them Cheap

Risk Free Option Trading - Using Arbitrage

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