Option Trading Strategies

Options are fundamentally different from forward and futures contracts. An option gives the holder of the option the right to do something. The holder does not have to exercise this right. In contrast, in a forward or futures contract, the two parties have committed themselves to doing something. Whereas it costs nothing (except margin requirements) to enter into a futures contract, the purchase of an option requires an upfront payment. With options, it is possible to trade for profit in rising, falling, or even static markets. You can

  • Speculate on price moves
  • Provide insurance against a fall in price of an asset
  • Make short term adjustments to the composition of your portfolios exposure
  • Enhance portfolio returns

Following these three simple steps can help in initiating a position with options:

  • Determine your Market Outlook – Bullish, Bearish or Undecided/Stagnant
  • Initiate Corresponding Strategy – Which strategy fits the outlook, Choosing ideal strike prices, expiries, etc.
  • Follow Up on the initiated strategy.

List of Various Option Trading Strategies