Owning options is a great way to deal with position trading as well as risk management. However, you also need to find a strategy that would prove to be helpful in choosing these tools for your benefit. As a beginner, you need to understand the available options and how they would work in your favour. An option does not give an obligation to the holder but the right to buy or sell a proposed asset at a given price before its expiry date. The ‘Call option’ is one such category of the options trading which gives its holder the right to sell a particular option. The call can be exercised when the strike price happens to be equal to the underlying stock price, or vice versa.
Here are some of the three call options strategies which can be used by the beginners, to understand it better. You can also visit different media platforms if you wish to know more on the same:
Under this category, you can get hold an underlying asset for a long period of time or can even sell the call. The risk associated in this strategy is that the maximum profit that you would earn would be limited and the loss might be significant. If there is an increase in the volatility, then it might have a negative effect, otherwise it would have a positive effect, if it decreases. The traders often make use of this strategy if they wish to match the market returns with the decrease in volatility.
This strategy is to Visit vertical spread due to the reason that they occur within the same month and might have two different strike price. In this case, the risk is more quantified when compared to that of the covered call.
The advantage associated with the bull spread is that, you can easily buy an underlying stock while selling a call on it at the same expiry date and at a higher strike price. You should use this strategy if you have an implication that the market might go up in sometime, or might eventually fall. In this case, the probability of earning a profit along with the risk is limited as the price that is paid for the call that has a lesser strike price is offset by the premium that is received partially.
Iron condor is considered to be one of the best strategies if you are new to the world of options trading. It is comparatively safe way in which you can sell assets because you can avoid losing on both sides of a certain trade. The market outlook is considered to be neutral when it comes to the Iron condor strategy. Moreover, you need to strategically use the leverage if you want to earn significant profits in the long run.
While opting for a certain strategy it is extremely important for the investor to have a trading plan and an exit strategy which can be used to deal with the substantial changes in the stock market. According to experts, the major mistake that a beginner makes is to not opting for a strategic plan and becoming overconfident due to the profits which are made early. You need to understand that learning the options trading market is an ongoing process and requires substantial time to get hold of the tactics that need to plan out according to a particular market flip. Research is also a crucial factor that needs to be considered before you opt for a particular strategy.