What are some "Option Trading Strategies" ?
It all depends on "Market conditions" to be honest.
There are some big "IF's" when we look at some “Option Trading Strategies”.
Iron Condor :
In this strategy we “Sell” 1 "At the money" Put and 1 "At the money" Call option and "Buy" 1 "Out the money" Put and 1 "Out the money" Call option in order to gain the benefit of time decay in the premiums under the “Neutral market conditions”. The “Risk” and “Profit” is limited.
Calender spread :
In a typical calendar spread, one would “Buy” a longer-term contract and “Sell” a nearer-term option with the same strike price. If two different strike prices are used for each month, it is known as a “Diagonal spread”.
Calendar spreads are sometimes referred to as “Inter-delivery, Intra-market, Time spread or Horizontal spreads”. The aim of this strategy is also to benefit from the time decay in premiums under the “Neutral market conditions”. The “Profit” is limited and in case of extreme movement the “Risk” surpasses that of the “Profit”.
Short Straddle :
A “Short Straddle” is a options strategy that involves simultaneously “Selling” both a “Put” option and a “Call” option for the underlying security with the same strike price and the same expiration date. It is a “Neutral market condition strategy”. The “Profit” is limited and the “Risk” is potentially unlimited.
Long Straddle :
A “Long straddle” involves simultaneously "Buying" both a “Put” option and a “Call” option for the underlying security with the same strike price and the same expiration date. It is the opposite of a “Neutral market condition strategy”.
The “Profit” is unlimited and the “Risk” is limited. A trader will profit from a long straddle when the price of the security rises or falls from the strike price by an amount more than the total cost of the “Premium paid”.
Long Strangle :
The “Long Strangle” or a “Buy strangle” or simply “Strangle” is a strategy in options trading that involve the simultaneous "Buying" of a slightly “Out-of-the-money” Put and a slightly “Out-of-the-money“ Call of the same underlying stock and expiration date. The “Profit” is potentially more than potential “Risk” and Risk is limited. It is the opposite of “Neutral market condition strategy”.
Short Strangle :
The “Short Strangle” ” is a strategy in options trading that involve the simultaneous "Selling" of a slightly “Out-of-the-money” Put and a slightly “Out-of-the-money” Call of the same underlying stock and expiration date. The “Profit” is limited and “Risk” is unlimited. It is a “Neutral market condition strategy.
Long Butterfly Spread using Calls :
The “Long Butterfly Call Spread” is created by "Buying" 1 “In-the-money” Call option with a low strike price, "Selling" 2 “At-the-money” Call options and "Buying" 1 “Out-the-money” Call option with a higher strike price. A “Net Debit” is created when entering the trade. It is “Neutral market condition strategy”.
The
“Maximum Profit” is achieved if the price of the underlying at
expiration is the same as the “Written calls”. The “Maximum Loss” is the
initial cost of the premiums paid plus commissions.
"Maximum profit and Maximum loss" both are limited.
Short Butterfly Spread using Calls :
The “Short Butterfly Call Spread” is created by "Selling" 1 “In-the-money” Call option with a lower strike price, "Buying" 2 “At-the-money” Call options and "Selling" 1 “Out-the-money” Call option at a higher strike price. A “Net Credit” is created when entering the position.
The “Maximizes Profit” is if the price of the Underlying is above the upper strike or below the lower strike at expiry. "Maximum profit and Maximum loss" both are limited. It is the opposite of a “Neutral market condition strategy”.
Covered Call :
Cash secured Put :
The "Cash-secured Put" involves writing/ selling a "Put" option and simultaneously setting aside the cash
to buy the stock if assigned. It allows an
investor to buy the stock at a price below its current market value. The
investor must be prepared for the possibility that it won't be assigned.
Long Call :
The
“Long Call” option strategy is the most basic option trading strategy
whereby the options trader "Buys" Call option with the belief that the
price of the underlying security will rise significantly beyond the
strike price before the option expiration date. The premium is paid to the writer/ seller of the option. The "Risk" is limited and the "Profit" is potentially unlimited.
Short Call :
A “Short Call” means selling a Call option where you are obliged to “Buy” the underlying asset at a fixed price in the future. This strategy has limited “Profit” potential if the stock trades below the strike price sold and it is exposed to unlimited “Risk” if the stock goes up above the strike price sold.
Long Put :
The “Long Put” option strategy is the most basic option trading strategy whereby the options trader "Buys" Put option with the belief that the price of the underlying security will fall significantly beyond the strike price before the option expiration date. The premium is paid to the writer/ seller of the option. The "Risk" is limited and the "Profit" is potentially unlimited.
Short Put :
A “Short Put” means selling a Put option where you are obliged to “Sell” the underlying asset at a fixed price in the future. This strategy has limited “Profit” potential if the stock trades above the strike price sold and it is exposed to unlimited “Risk” if the stock goes down below the strike price sold.
All this being said, the question remains that “How will one know when the particular scrip will trend and in which direction it will trend or for how much time it will remain neutral”.
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