Choices are very flexible and no-obligation financial instruments used to profit from different market conditions and/or to limit trading risks and exposure. Options strategies are methods to reach specific options trading goals and to better utilize different opportunities and market conditions. Unlike almost every other financial instruments options enable traders to make money from any market conditions even in fast downtrends and in no price changes.
There are a number of different alternatives trading strategies available now and new ones are invented everyday. A number of them are widely popular and followed however, many others are trading secretes of some persons or groups. There are no strategies to benefit from every market condition; in fact for successful implementation, a lot of them require some prerequisites. Options trading strategies can be simple which require normal trading platforms and include 1 or 2 contracts/traders OR could be complex which require sophisticated trading systems and involves many contracts/call put option tips.
Depending on the nature and implementation, options trading strategies could be categorized to 3 main groups as,
1. Bullish: They’re strategies which are utilized once the underlying product price is likely to go up. Put simply the successful implementation requires price increase of the underlying product. Examples include short put, long call, synthetic long stock, bull spread, etc.
2. Bearish: They are utilized once the underlying product price is expected to go down and successful implementation requires price decrease. Examples include long put, short call, bear spread, synthetic short stock, etc.
3. Non-Directional or Market Neutral: These strategies are utilized on expected price volatility of the underlying instrument and are not depend on price ups and downs. Success with these is achieved once the expected price fluctuation is achieved or not-achieved. Examples include straddles, strangles, butterfly, etc. Non-directional strategies can be further divided to two as bullish-on-volatility and bearish-on-volatility.
Along with the above three main categories two other categories also exists which are event-driven and stock-combination strategies; the former expects/considers a certain event like mergers and takeovers and make an effort to benefit from that and the later is complex tactics offering combinations of trades or option types.
You can find not one options trading strategy that suit every trader. In fact the right choice should be determined by many factors such as the underlying product, market conditions and volatility, trader experience, access to quotes and sophisticated trading systems, brokerage service trader using, trader portfolio size and risk tolerance, long-term or short-term trading goals, and money management. Although, lots of today’s trading systems are pre-loaded to support many popular strategies it is an excellent idea to learn as much strategies that you can and to create them easily accessible to you. The typical recommendation is that to implement simple one when you’re a starter and switch to more complicated ones as you can know more about different options, industry and its movements.