Option Trading Strategies

It's no secret that option trading involves a certain amount of risk. This is the primary reason why not all investors are suitable to handle such an investment. Despite the risk, a good number of investors still invest their money because they have also seen the potential profits their investment can make. And they also know that with the right option trading strategies, they'll be able to make it big.

As the buyer, you may want to stick it out with long option trading strategies as the risk is only the premium that is paid for owning the option. Once you have a feel for a particular stock or index, you can purchase a call on it, if you believe it will move up. On the other hand, if you are quite certain the market will be moving lower, you can buy a put option.

As you learn about options, you will be able to gauge the market and know when to purchase options that are in-the-money. Option trading strategies that are out-of-the-money are priced based on how likely they are going to be in-the-money at or prior to the option contract expiration.

As an options investor, you can try to handle the market on your own or you can ask for the help of an experienced person to help you. If the market favors your option's strike price or it even moves through it, you can then exercise your right on that particular contract. The resulting position can then be offset with a futures market and most probably gain a good profit. If the market, however, moves against your position, it will expire and you will have forfeited the premium. You can also sell your option before its expiration for less (or more) premium compared with the amount that you initially paid. Other important parts of your options trading strategies are exiting, writing, or selling options.

New or experienced, all traders, of course want to be successful. Other options trading strategies that are worth knowing are bull spreads and bear spreads. The key to these strategies is to sell further from the money option and this will offset a portion of the initial option cost. This will put a ceiling on your income potential but it will also limit your risk.

To be educated is critical before jumping into the options market. You can ask for the help of another professional trader -- one who has already earned (and preferably still earning) big in options trading. Or you can turn to a video course on options trading that was created by an experienced ultra-successful trader.

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