[10+] What are the Option Trading strategies for beginners ?

Option trading is the only trading strategy that can give you unlimited profit but limited loss. Beginners are usually unknown to many option trading strategies that becomes a hindrance for them and their portfolio reflects loss while trading.

In order to maximize your profit while option trading we are going to discuss more than 10 option trading strategies.

Option Trading strategies for beginners
Option Trading strategies for beginners

10 Option Trading Strategies :-

  1. Covered Call
  2. Married Put
  3. Bull Call Spread
  4. Bear Put Spread
  5. Long Strange
  6. Long Straddle
  7. Protective Coller
  8. Iron Conder
  9. Iron Butterfly
  10. Long Call Butterfly Spread

These are our top 10 strategies that we will discuss, Use our Table of Contents if you want to go to any Topic Directly.


1. Covered Call

Option Trading strategies for beginners
Covered Call

When it comes to calls, one technique is to just purchase a naked call option. A basic cover call or buy-write also can be constructed. This is indeed a popular technique since it generates income while reducing the risk of investing in a single asset.

You must be prepared to sell your shares at a specified price—the short strike price—as a trade-off. To carry out the approach, you buy the underlying stock as usual and concurrently write (or sell) a call option on the same stock.

Consider the case of an investor who buys a call option on such a stock that reflects 100 shares of the stock.

The investor would concurrently sell one call option for every 100 stock shares they purchased. This technique is known as a covered call since the short call of this investor is covered by long stock position if the stock price rises significantly.

When investors have a short-term investment in a stock and a neutral opinion on its trajectory, they may choose to utilise this method.

They may be aiming to profit from the selling of the call premium or to hedge against a possible decrease in the value of the underlying stock.

2. Married Put

Option Trading strategies for beginners
Married Put

Inside a married put strategy, any investor buys an asset (such as stock) and concurrently buys put options for the same number of shares. 2 Each contract is worth 100 shares, and the holder of a put option does have the authority to sell stock at the strike price.

When owning a stock, an investor may opt to employ this method to reduce their negative risk.

This method works similarly to that of an insurance policy in that it sets a price floor there in case of a severe drop in the stock’s price. It’s also called as a protective put because of this.

Let’s say an investor purchases 100 shares and one put option at the same time. This technique may appeal to this investor since it protects them from losing money if the stock price falls.

At the same time, if the stock rises in value, the investor will be able to participate in each and every upside possibility. The sole downside of this technique is that the investor loses the premium paid for such put option if the stock does not decline in value.

3. Bull Call Spread

Option Trading strategies for beginners
Bull Call Spread

An investor who uses a bull call spread strategy buys calls at a given strike price while concurrently selling the same amount of calls at one higher strike price. The underlying asset and expiration date will be the same for both call options.

When an investor is positive on the underlying value and predicts a slight growth in its price, this form of vertical spread technique is commonly utilised. Using this method, the investor can restrict the trade’s upside while simultaneously lowering the net premium paid. 

4. Bear Put Spread

Option Trading strategies for beginners
Bear Put Spread

Another type of vertical spread is the bear put spread. The investor uses this method to buy put options at a specified strike price while also selling the same amount of puts at such a lower strike price.

Both options are bought for the very same underlying asset & expire on the same day. When a trader has a pessimistic attitude toward the underlying asset but also believes the asset’s price will fall, this technique is applied. The technique has a low risk of losing money as well as a low risk of making money.

5. Long Strange

Option Trading strategies for beginners
Long Strange

A long strangle options strategy involves purchasing a call and a put option with different strike prices: an out of the money call option as well as an an out of the money put option on same underlying asset with same expiration date on the same underlying asset.

An investor who employs this technique believes the price of the underlying asset will see a significant change, but is unclear in which direction the change will occur.

This approach might be based on information from a company’s earnings announcement or an event involving a Food and Drug Administration (FDA) approval for one pharmaceutical stock. Losses are restricted to the cost of both choices (the premium paid). Because of options purchased are out of the money options, strangles are usually always less expensive than straddles.

6. Long Straddle

Option Trading strategies for beginners
Long Straddle

When an investor buys a call and a put option on same underlying value with same strike price & expiration date, this is known as long straddle options strategy.

When an investor believes the price of the asset would move dramatically out of a specified range, although they are unsure which direction that move will go, they will typically utilise this approach.

Theoretically, this method gives the investor the chance to make endless profits. Simultaneously time, this investor’s maximum loss is restricted to a cost of both option contracts combined.

Whenever the stock makes a huge move inside one direction or another, this method becomes beneficial. The investor doesn’t care which way the stock swings; all he cares about is that it moves more than the whole premium he paid for the arrangement.

7. Protective Coller

Option Trading strategies for beginners
Protective Coller

When you already own the underlying asset, you may use a protective collar approach by acquiring an out of the money (OTM) put option & concurrently writing an OTM call option (with the same expiration).

Investors frequently utilise this method after one long position inside a stock has witnessed significant gains.

The long put serves to lock in the possible sale price, giving investors downside protection. However, they may be forced to sell stocks at the a higher price, sacrificing the opportunity for more earnings.

A covered call as well as a long put combine to form the protective collar. It is a neutral trading setup, which implies the investor is safe in the case of a stock decline. The downside is that you may be forced to sell your long stock just at short call strike.

The investor, on the other hand, will most likely be pleased to do so because the underlying shares have already increased in value.

8. Iron Conder

Option Trading strategies for beginners
Iron Conder

Inside the iron condor strategy, an investor owns a bull put spread as well as a bear call spread at the same time. Selling one out-of-the-money (OTM) put and purchasing one OTM put of a lesser strike a bull put spread & selling one O.T.M call and buying 1 OTM call of a bigger strike a bear call spread–make up the iron condor.

All of the options are all on the same underlying asset and have same expiration date. The spread width on the call and put sides is usually the same.

This trading method earns an net premium upon that structure and is meant to profit from a low-volatility stock. This method is popular among traders since it is thought to have a good chance of earning a tiny amount of premium.

When the stock continues in a pretty wide trading range, the highest profit is achieved. As a result, the investor may be able to profit from the entire net credit earned when structuring the deal.

The larger the loss up to a maximum loss, but the farther away the stock travels through short strikes lower again for put & higher for the call.

The maximum loss is almost always higher than the total gain. This makes obvious sense, considering that the structure has a larger chance of concluding with a minor benefit.

9. Iron Butterfly

Option Trading strategies for beginners
Iron Butterfly

An investor would sell an ATM put and purchase an out-of-the-money put in the iron butterfly approach. They’ll sell an AT THE MONEY call & buy an OTM call at the same moment.

All of the options are all on the same underlying stock have the same expiry date. Although similar to a butterfly spread, this approach employs both calls & puts. 

This method entails selling an ATM ( At The Money) straddle and purchasing “wings” to safeguard the trade. The structure can alternatively be thought of as two spreads. It’s typical for both spreads to be the same width.

The long, OTM ( Out of The Money) call hedges against all possible losses. The long, OTM ( Out of The Money) put hedges against the risk of losing money .

Profits and losses are both confined to a certain range, based on the price targets of the options utilized. This technique appeals to investors because of the income it creates and the better likelihood of a minor gain with such a non volatile stock.

When the stock stays at the ATM strikes of both call & put that are sold, the maximum profit is realised. Net total premium received is the greatest gain. When the stock goes up or down the long call or long put strike, the maximum loss is incurred.

10. Long Call Butterfly Spread

Option Trading strategies for beginners
Long Call Butterfly Spread

The preceding techniques necessitated the use of two distinct roles or contracts. An investor would combine both a bull as well as a bear spread approach in a long butterfly spread utilising call options. They’ll employ 3 different strike prices as well. The underlying asset & expiration date are the same for all options.

Purchase one (in the money) call option at the a lower strike price, sell two at-the-money call options, and purchase one out-of-the-money call option option to create a long butterfly spread. The wing widths of a balanced butterfly spread would be the same.

A “call fly” is a type of example that result together in net debit. When an investor believes the stock would not move well before expiry, they will buy a long butterfly call spread.


Conclusion :-

So this was our top 10 strategies every option trading beginner must know in order to maximise their profit.

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