Choices are very flexible and no-obligation financial instruments used to profit from different market conditions and/or to limit option trading strategy and exposure. Options strategies are methods to attain specific options trading goals and to better utilize different opportunities and market conditions. Unlike almost every other financial instruments options enable traders to benefit from any market conditions even in fast downtrends and in no price changes.
You can find a number of different choices trading strategies available now and new ones are invented everyday. Many of them are widely popular and followed but some others are trading secretes of some persons or groups. You will find no strategies to benefit from every market condition; in fact for successful implementation, most of them require some prerequisites. Options trading strategies can be simple which require normal trading platforms and include a couple of contracts/traders OR can be complex which require sophisticated trading systems and involves many contracts/trades.
With respect to the nature and implementation, options trading strategies can be categorized to 3 main groups as,
1. Bullish: They’re strategies which are utilized when the underlying product price is expected to go up. In other words the successful implementation requires price increase of the underlying product. Examples include short put, long call, synthetic long stock, bull spread, etc.
2. Bearish: These are utilized when the underlying product price is likely to decrease 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 aren’t rely on price ups and downs. Success with your is achieved when 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.
In addition to the above three main categories two other categories also exists which are event-driven and stock-combination strategies; the former expects/considers a specific event like mergers and takeovers and attempt to make money from that and the later is complex tactics that include combinations of trades or option types.
You can find no options trading strategy that suit every trader. In fact the best choice should depend on many factors just like 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, many of today’s trading systems are pre-loaded to support many popular strategies it’s a good idea to learn as much strategies as you possibly can and to produce them readily available to you. The typical recommendation is that to implement simple one if you are a starter and switch to more technical ones as you’re able to know more about different choices, the market and its movements.