Stock market investing: The Complete Crash Course - This book includes: Stock Market Investing for beginners + Options Trading Strategies + Forex Trading for Beginners by Benjamin Warren Ray

Author:Benjamin, Warren Ray [Benjamin, Warren Ray]
Language: eng
Format: epub
Published: 2020-09-28T00:00:00+00:00

Chapter 7:

Options Strategies You Must Know to Trade Successfully

W hether you are a beginner, average trader, or experienced options trader, there are strategies you need to use to make options work for you. When it comes to options trading, you do not need to be a genius to make it.

Many traders invest in options without the necessary information. This is one mistake that results in self-doubt and lack of confidence in the trade. People who do this often give up as soon as they start. With the right strategies in place, you can easily make income, secure your capital, and make the volatile nature of options to work in your favor.

Trading strategies help you reduce risks and maximize profits. If you do not have any strategy to follow, the business can become difficult and costly. Options strategies vary from simple ones to sophisticated ones but have one thing in common – they are all based on put and call operations. The payoffs do vary greatly, and before you settle on a strategy, be sure to understand how it works, the expected gain as well as if there are any risks involved. As a beginner, do not get overwhelmed with a large number of strategies available since you only need a few basic ones to get started. You can add more of these to your trading plan as you master the game.

Strategies Related to Calls

The process of buying and selling calls is one of the easiest in the options trading field. It is one of the popular and frequently used ways to get into options trading. This is because it allows you to own stock, using very little capital. Buying calls also presents you with a higher profit potential than purchasing stock—some of the strategies you can exploit when buying calls are listed below.

Covered Calls

Covered calls entail setting up call options against your stock. This strategy is not only popular in options trading but in other financial institutes that deal with stock as well. In this strategy, you only sell options to protect your stock from a downward price movement and also increase your returns. Most investors do this any time there is a possibility of good gains on their stock. In most cases, they sell out-of-the-money calls, and once the price goes high, they trade the stock for a profit.

One advantage of this strategy is that you get to keep your stock at expiration if it falls below the strike price. If the stock goes above the strike price, you will sell the stock shares to the buyer at the strike price. Most investors use this strategy to generate profit at limited risks while retaining their stock.

The downside of covered calls is that you need at least 100 shares of stock to make the calls. The strategy is thus not beneficial for traders who wish to start small. Traders are also allowed to sell only one call option against 100 stock shares. This is called a covered call because, if the stock price goes high, the call will be covered by the position of your stock.

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