Best option trade strategy
Of course, this isn't without its risks. If the price of the underlying security goes up, but not by enough to make the long call profits greater than the long put losses, then you'll lose money.
Equally, if the price of the underlying security goes down, but not by enough so the long put profits are greater than the long call losses, then you will also lose money. Basically, small price moves aren't enough to make profits from this, or any other, volatile strategy. To reiterate, strategies of this type should only be used when you are expecting an underlying security to move significantly in price.
Below is a list of the volatile options trading strategies that are most commonly used by options traders. We have included some very basic information about each one here, but you can get more details by clicking on the relevant link. If you require some extra assistance in choosing which one to use and when, you may find our Selection Tool useful. We have briefly discussed the long straddle above. It's one of the simplest volatile strategies and perfectly suitable for beginners.
Two transactions are involved and it creates a debit spread. This is a very similar strategy to the long straddle, but has a lower upfront cost. It's also suitable for beginners. This is best used when your outlook is volatile but you think a fall in price is the most likely.
It's simple, involves two transactions to create a debit spread, and is suitable for beginners. This is basically a cheaper alternative to the strip straddle. It also involves two transactions and is well suited for beginners.
You would use this when your outlook is volatile but you believe that a rise in price is the most likely. It is another simple strategy that is suitable for beginners. The strap strangle is essentially a lower cost alternative to the strap saddle. This simple strategy involves two transactions and is suitable for beginners. This is a simple, but relatively expensive, strategy that is suitable for beginners. Two transactions are involved to create a debit spread. This more complicated strategy is suitable for when your outlook is volatile but you think a price rise is more likely than a price fall.
Two transactions are used to create a credit spread and it is not recommended for beginners. This is a slightly complex strategy that you would use if your outlook is volatile but you favour a price fall over a price rise. A credit spread is created using two transactions and it is not suitable for beginners. Short Calendar Call Spread. This is an advanced strategy that involves two transactions.
It creates a credit spread and is not recommended for beginners. Short Calendar Put Spread. This is an advanced strategy that is not suitable for beginners. It involves two transactions and creates a credit spread. This complex strategy involves three transactions and creates a credit spread.
It isn't suitable for beginners. This advanced strategy involves four transactions. A credit spread is created and it isn't suitable for beginners. This is a complex trading strategy that involves four transactions to create a credit spread. It isn't recommended for beginners.
Reverse Iron Butterfly Spread. There are four transactions involved in this, which create a debit spread. It's complex and not recommended for beginners. Reverse Iron Condor Spread. This advanced strategy creates a debit spread and involves four transactions. That cash reduces your cost. Thus, if the stock declines in price, you may incur a loss, but you are better off than if you simply owned the shares. Cash-secured naked put writing. Sell a put option on a stock you want to own, choosing a strike price that represents the price you are willing to pay for stock.
You collect a cash premium in return for accepting an obligation to buy stock by paying the strike price. A collar is a covered call position, with the addition of a put. The put acts as an insurance policy and limit losses to a minimal but adjustable amount. The purchase of one call option, and the sale of another. Or the purchase of one put option, and the sale of another. Both options have the same expiration. Thus, the higher priced option is sold, and a less expensive, further out of the money option is bought.
This strategy has a market bias call spread is bearish and put spread is bullish with limited profits and limited losses. A position that consists of one call credit spread and one put credit spread.