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. Whether we anticipate the future price action of the stock, commodity future, index or currency pair to be directional or range trading will influence the way we use options to take advantage of this and profit.

On the other hand, we may have reasons to believe that a large move in the underlying is imminent but aren't sure which way it will go. This may be due to price patterns we observe on charts or impending news releases. There are some option strategies which are ideal for this scenario too. Some are well known while others, hardly anyone knows about.

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.

So let's take a look at what's on offer. Some of these you may be familiar with because they are well known and taught by popular courses; others are well kept secrets used by professional traders.

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

Victory Spreads
This little known strategy risks only a few dollars to potentially make hundreds or even thousands. Amazing!

3. Volatility Strategies

Option Volatility - Implied Volatility (IV)

4. Directional Spreads

Debit Spreads

Credit Spreads

Bull Call Spreads

The Ratio Calendar Spread

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

***************** ****************

Go to Option Trading Homepage

Do You Have Something to Say About This?

We and other readers of this information site, value your input.

If you have some experience in this area and would like your expertise to be recognized, please fill out the areas below, then click on the 'Submit' button.

You can include any graphics such as charts, that you wish.

All our readers thank you. So do we :-)

What Other Visitors Have Said

Click below to see contributions from other visitors to this page...

New! Comments