5 best strategies for Option Trading

Trading or investing is what most people are confused about while starting their stock market journey. In the stock market investing in buying the stocks of the company for a longer period is long term investing. On the other hand, trading is speculation of the price movements of the stocks to book the profit. But stock trading is not just that there are multiple ways in which traders trade day trading, swing trading, option trading futures trading in this article we are going to discuss what is options trading and what are the best option trading strategies.

What is options trading?

An option is a contract that issues rights to two traders to buy or sell the stock within the present time frame and price. There are two types of options trading: call option and put option. A call option gives you the right to buy the shares at a pre-specified price by a set date. And the put option gives you the right to sell stock at the strike price by the specified date. To put it in simple words, call and put the option gives the right to buyers and sellers to buy or sell the stock at a reserve price before the expiry date. The most important thing about options trading is that it gives the right to buy or sell the stock but it is not an obligation to buy or sell it.

What are the 5 best option trading strategies?

1. Spread

It is a put and call combination strategy. When a trader takes a position by buying and selling an equal number of options at the same time. The position is for different strike prices. This strategy is divided into 3 parts.

● Horizontal spread.

Spread with the same strike price but different expiry dates are known as the horizontal spread.

● Vertical spread.

Spread with the same expiry date but different strike prices are known as a vertical spread.

● Diagonal spread.

Spread with different expiry dates and different strike prices is known as the diagonal spread.

2. Straddle

When things aren't clear in trade traders use the straddle strategy. In this strategy calls and puts are bought together for the same strike price and expiry. Things to remember before straddling.

● Buying and selling of call or put options. The same underlying and strike price is a must. ● A trader is expected to enter an At - money contract.

● The strike price and underlying price must be the same.

3. Strangle

It is almost similar to straddle but with a little bit of difference. In this position are held in both calls and puts with the same expiration dates but different strike prices. It is usually done in money contracts. Long strangle, strong strangle are some types of strangling strategies.

4. Covered Call.

This is a strategy that helps in risk management. In this strategy, traders hold a long position in the underlying asset while selling call options. The strategy is used as a defensive strategy for trade.

5. Protective put

This strategy is also known as a synthetic call, This strategy is similar to a covered call strategy. It is also a hedging strategy. This strategy includes holding a long position in the underlying asset and buying a put option with the same or a nearby strike price.

Now the question arises if you should start trading using these strategies? Well, options trading is high-risk trading 95% of traders lose their money in options trading. So if you are new to the stock market try normal trading or long term investing as it is a great option for the start. That was all you needed to know about option trading and the option trading strategies. To end it trader looks for consistency and gambler looks for a quick profit. So don't just try the risky option trading strategies for quick gains in the market.