Option trading strategies can vary depending on an investor’s goals, risk tolerance, and market conditions. Here are a few common strategies:
- Covered call: In this strategy, an investor owns an underlying asset and sells a call option on that asset. If the price of the underlying asset stays the same or goes down, the investor keeps the premium from selling the option. If the price goes up, the investor may be obligated to sell the asset at a lower price.
- Protective put: This strategy involves buying a put option on an underlying asset that an investor already owns. The put option provides protection against a potential decrease in the price of the underlying asset.
- Long call: In this strategy, an investor buys a call option on an underlying asset. If the price of the underlying asset goes up, the investor can make a profit by exercising the option and buying the asset at a lower price.
- Long put: This strategy involves buying a put option on an underlying asset. If the price of the underlying asset goes down, the investor can make a profit by exercising the option and selling the asset at a higher price.
- Straddle: This strategy involves buying a call option and a put option on the same underlying asset with the same expiration date and strike price. If the price of the underlying asset moves significantly in either direction, the investor can make a profit.
- Strangle: This strategy is a type of options trading strategy that involves buying or selling both a call option and a put option with the same expiration date, but with different strike prices. The idea behind the strategy is to profit from a significant price movement in the underlying asset, regardless of whether it moves up or down.
It is important to note that option trading involves risks and should only be undertaken by experienced investors who fully understand the risks involved. It is also advisable to consult with a financial advisor before making any investment decisions.