The options trading strategies for various market scenarios:
The traders always think of the options trading as a very complex form of investment. It is a common belief that if you are not an expert in this, the options trading will surely result in a big money loss. It is true that no investors can guarantee the throughout success or failure of the options trading using a fixed strategy; regardless of the options trading strategy they choose. There are several effective options trading strategies out there to give you maximum control over your investment. You can make good profits with lesser risks. The cost of every transaction has to be considered including the commissions to make a really wise decision.
Some good and effective options trading strategies
are listed below to guide you:
Whenever an investor of options trading expects a hike in the prices of the stocks, he starts following bullish strategy. It is important for the trader to clearly identify the growth of the market to see how far it would go in fixed time duration. The strategy to be used for investment varies widely depending on the bullishness of the trading market. In a very minimal bullishness of the trading, traders generally look for little bit of protection. In situation of an average bullish of market, the majority of the investors take options trading strategies such as bull put spread or bull call spread techniques. In a highly fluctuation scenario of the market, the traders try making the best use of it by making long investments strategies such as short butterfly, short condor, long straddle.
The bearish options trading are generally practiced by the traders when they expect the market to crash or to go through a quick downfall. The strategy follows estimation of the time duration he has left to make the best investments in this situation. The simplest bearish strategy is to simply put buying technique, while some average bearish strategies include bear put spread and bear call spread techniques. For the market downfall period, there are several strategies for the traders to follow to gain maximum benefits from the stocks, by purchasing them at minimum risks. The downfall of the market decreases prices of the stocks, and this can be an opportunity for the investors to predict potential of a stock and purchase it at minimal cost. Some useful strategies for this approach are- long butterfly, long condor, ratio spreads, short strangle, and short straddle.
This is the most general situation of the market, and it is unclear if the market will go through a rise or a fall. In this scenario of not knowing, the traders use neutral strategies to evaluate the pricing and potential of various stocks in the market. Some of the most popular neutral strategies are- risk reversal, strangle, straddle, condor, butterfly, and guts.
In any option trading investment, timing is the most important factor. For the maximum benefit and least possible risk, you need to purchase the stocks when the prices are lowest, and sell it when the prices reach its peak. Keeping track of your investments and trends of market shifting is a good way of making investments.
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