Online options trading sounds complex but if you use the right strategies, you can reduce the risk and increase the return. Options is a contract that lets you buy/sell stocks at a fixed price. If you are buying the stocks in option, you have to pay a premium to the seller.
In this article, you will learn about the 5 most common strategies to use for options trading.
Top 5 Free Options Trading Strategies
Bull Call Spread
A bull call spread is a part of the debt spreads strategy. You can buy calls at a particular strike price and sell the same calls at an increased strike price. Both these calls will have the exact expiration date. This strategy can be used if you are bullish on the stock and want a slight increase in its price. Using this strategy, you can reduce the net premium paid to buy the stocks.
Covered Call
A covered call is one of the most used strategies as it generates earnings and drops the risk of holding the stock alone for a long time. In this strategy, you have to sell your underlying assets at a short strike price. You have to simultaneously purchase the stocks and sell a call option on them.
Bear Put Spread
A bear put spread is a part of the vertical spread strategy. Here you purchase the put options at the decided strike price and sell them at a lower strike price together. Both options have the exact expiration date. This strategy is suitable for when you are bearish about the stocks and expect their price to decrease. It will restrict your profits and losses.
Married Put
In a married put or protective put, you simultaneously buy the stocks and put options for the exact number of shares. The holder of those put options can sell his stocks at a strike price and every contract is equivalent to 100 shares. You can use this strategy to protect the risk of holding the stocks. It works like an insurance policy where a price floor is pre-determined in case the stock price falls drastically.
Protective Collar
A protective collar strategy is where you purchase an OTM (out-of-the-money) put option and write an OTM call option simultaneously. This only happens when you own an underlying asset. You can use this strategy after a stock’s position has gained substantial profits. It will protect you by locking the long put at a potential selling price. Although in this strategy, it might be compulsory for you to sell the shares at a high price and forgo possible future profits.
Conclusion
We have discussed the top 5 most used free options trading strategies. There are several other beneficial strategies, including synthetic call, bull call ratio backspread, bear put spread, strip, long and short straddles, and momentum strategy. You can adopt the one that helps you achieve your long-term financial growth. Ps: many of them are free options trading strategies!
