If you want to make money investing, you need some kind of strategy. This is as true for real estate as it is for traditional stocks and commodities. An options trading system is just as essential. Although trading options comes with many advantages all on its own, none compare to a finely-tuned system. The following strategies are popular ones that you may want to add to your system to reap the most benefits.
With this move, your options trading system would involve buying an asset outright. At the same time, you’re also writing a call option on this asset for the same amount you just bought. This is a good move for traders who have a neutral opinion and short-term position on the asset being used. Despite your lukewarm feelings on an asset, this strategy can both garner profits and protect you from the impending decline of said asset.
If your options trading system has you owning an asset you’re bullish on (or one you plan on purchase soon), you may want to use a married put. This is where you purchase a put option for the asset in the exact same amount. By doing this, you can protect your investment from short-term losses with what essentially amounts to an insurance policy. A married put also establishes a floor, just in case the asset drops dramatically out of nowhere.
Bull Card Spread
With a bull card spread, you’ll once again be taking simultaneous action, this time by purchasing call options at two different strike prices, though both for the same amount of calls. Both of these calls will be for the same asset and with the same expiration month. This is a great move for an options trading system where you are bullish on the underlying asset and think it will show modest growth in the next month or so.
Bear Put Spread
Like the bull card spread, the bear put spread is a vertical spread strategy. This time, though, you’ll be purchasing put options at a strike price and selling the exact same number of puts, but doing so at a lower price. Just like before, you’re doing this on the same underlying asset and with the same expiration date. Bear put spreads are for traders that feel bearish about an asset and believe its price will be declining in the near future.
Lastly, a protective collar is a smart way to lock in profits after you’ve incurred substantial gains, without actually having to sell your shares. To do this, you buy an out-of-the-money put option and write an out-of-the-money call option simultaneously, both for the same asset.
Your options trading system will never be finishes. As you mature as a trader, the system will constantly be refined. However, the above are basic strategies that every options trader should regularly be making use of, no matter how long they’ve been in the game for.