Options Strategies

Options Strategies are divided into 3 categories:

1. Bullish
2. Neutral
3. Bearish
   

You'll need to apply the appropriate option strategy if you want
to make the most profit.

You must analyze the overall market trend and individual
stock direction before even consider to enter the trade.

Bullish options trading strategy will have greater gain in a
rising markets. Investments using this strategy is not
suitable for a falling market.

Below are the list of bullish option strategies:

LONG CALLS
For aggressive investors who are bullish about the short-term
prospects for a stock, buying calls can be an excellent way to
capture the upside potential with limited inside risk.

COVERED CALLS
For conservative investors, selling calls against a long stock
position can be an excellent way to generate income without
assuming the risks associated with uncovered calls.
In this case, investors would sell one call contract for each
100 shares of stock they own.

PROTECTIVE PUT
For investors who want to protect the stocks in their portfolio
from falling prices, protective puts provide a relatively low-cost
form of portfolio insurance. In this case, investors would
purchase one put contract for each 100 shares of stock they own.

BULL CALL SPREAD
For bullish investors who want to a nice low risk, limited return
strategy without buying or selling the underlying stock, bull call
spreads are a great alternative. This strategy involves buying
and selling the same number of calls at different strike prices to
minimize both the cash outlay and the overall risk.

BULL PUT SPREAD
For bullish investors who want a nice low risk, limited return
strategy, bull put spreads are another alternative. Like the
bull call spread, the bull put spread involves buying and selling
the same number of put options at different strike prices.
Since puts with the higher strike are sold, the trade is initiated
for a credit.

CALL BACK SPREAD
For bullish investors who expect big moves in already volatile
stocks, call back spreads are a great limited risk, unlimited
reward strategy. The trade itself involves selling a call
(or calls) at a lower strike and buying a greater number of calls
at a higher strike price.

NAKED PUT
For bullish investors who are interested in buying a stock at
a price below the current market price, selling naked puts
can be an excellent strategy. In this case, however, the risk
is substantial because the writer of the option is obligated to
purchase the stock at the strike price regardless of where the
stock is trading.

We'll look at the bearish options strategies in the next post...