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Home Page > Finance > Day Trading > Stock Option Strategies

Stock Option Strategies

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Posted: Apr 24, 2010 |Comments: 0
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The stock exchange elicits a certain mystique for people still getting to know the investment.  Of course, the risks are real and there is a certain level of speculation, though it is not at all chaotic. More importantly, the money is real.  Perhaps, it is the thrill in the unknown that draws people to the investment in stock exchange.  It is the fulfillment of a winning investment.  Regardless of the reason, the stock exchange is a place where you can make your financial dreams real.

However, any investment, whether large or otherwise, must be treated with respect.  As such, taking away the veil of assumptions and misconceptions will help anyone gain a better understanding of the stock market; thus, increasing the chance of success.

An investor desiring to profit more is understandable, but the real task is to understand how this is done.  Stock option strategies are your means to realize your target of making more money.  As said earlier, the risk of losing money in an investment must be considered.  In addition, the room for speculation exists in all options that are presented. The aim there is to minimize the risk and maximize your profit.  This sounds easier than it seems!  Stock market research is obviously a good place to start, but it does not have to end there.  There are several basic strategies that you can do, other than just study the market.

In option trading, there is something that is referred to as the call option.  As an investor, you have the right to buy 100 shares of a specific stock for a particular price.  However, keep in mind that the price of the share is for a specific period only.  Such investment can bring you profit, if you buy the shares, where then the value of the share increases after some time.  However, if the value of the shares goes downtrend, then you are sure to lose your investment.  On the other hand, there is also a financial move known as the put option.  Put option involves selling your share for a specific amount for a particular period of time.  The advantage is that the selling price of the share had already been tied to a particular amount even if the value of the share decreases in time.  However, though the share value increases, selling the share may not be a good decision.  The question is whether to take it or not?

Opting for a more conservative strategy is one advice all beginners should heed.  A credit spread strategy is a move that entails both call option and put option at the same time, obviously for different stocks.  The idea is to buy shares with a low value and selling the share while price is still high.  The covered call writing in contrast, sells the call option that you have to another investor.  The basic idea is to buy low and sell high.

Do it like a pro and get the help of professionals.  Now, trading software is available to manage your investment.  You can lower the risk while increasing your profit through whatever strategy you choose.

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Gelly Alfe -
About the Author:

Arthur Webb is a financial professional, who has been involved in stock trading for decades now.  His experience has taught him that many people still find stock trading and the stock market to be confusing.  He endeavors to reach out to as many people as possible and share his knowledge and experience about the stocks in a simpler and non-intimidating way.  Learn all about his work by visiting Stock-Trading-Program.com.  Read related article:  Stock Option Strategies: How to sell stocks using the tailwind trading system

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Best Stock Option Strategies

As the markets have crashed in every possible way in the last month, everyone has got burnt. Stocks have crashed by 40% on average, which means that lots of people got hit by more than 40%. Stock portfolios, retirement funds, mortgages all look disastrous, and no-one wants to hear “buy and hold” anymore. Overall trust in investing and the stock market is at an all time low. Every investing strategy looks bad. Or does it?

Options trading is a strategy that is not dependent on the market direction, and in fact does better in volatile markets. That is what makes now the best time to trade options. So, why would you trade options?

Options trading does not need to be risky or a gamble. It is true that there are some people who do gamble with options, but they quickly lose their shirts and leave the field. Options trading gives you a wide range of strategies that have varieties of profit and risk potential. In fact, many strategies are significantly less risky than “buy-and-hold”, and most are significantly more profitable than just about any stock trading strategy that you can name.
When trading options, most of your portfolio is in cash for most of the time. In fact, even when you are actively trading, you can still have your whole portfolio in cash!
When trading options, your trades are by definition short term, and you do not need to hang around for months and months to see whether you make a profit or not.
Options work in ANY market – up, down, or stagnant. Best Stock Option Strategies

Which strategies are best to use during a recession?

Despite the massive leverage and profit potential of buying and selling calls and puts, it can look too much like gambling. In fact, if you don’t have a watertight strategy, it can be extremely risky. That is why it better to look at other possibilities.

Selling credit spreads. This strategy can bring in 15-20% profit on your portfolio per month, with no cash outlay, although you do need to put up margin. You can start with $1,000, and the only technical knowledge that you need is to be able to run a simple trend analysis. No trade lasts longer than a month, and you have an 80% or better chance of winning your trade.
Selling naked puts. You effectively get paid to buy your favorite stock, or in other words, you can buy stocks at greatly discounted prices. Or you can treat them like credit spreads, and run trades every month in an upwardly trending market.
Selling covered calls. If you own a stock, you can sell a covered call on it every month. In a downward trending market, this helps you recoup your losses. In a stagnant market, it helps you reduce the net cost of your stock. In an upward trending market, you can lock in your profits on a stock and move on.

These are all very low risk strategies, that can easily bring in a monthly income of at least 10-15% on your portfolio. You will not need to be glued to a computer screen day after day, and all three of these strategies can be accomplished with less than one hour per month in front of your computer. Each of these strategies takes advantage of time decay, the concept by which options lose value very quickly as their expiration date approaches.

There are other strategies such as Iron Condors, Straddles, Strangles and so on, which can be very effective, but none are as reliable nor as safe as these other three. In addition, they often incur higher brokerage fees.

Strategies such as DITM (Deep-in-the-Money) options trading can be useful if you favor a swing trading type stock strategy. You effectively buy stocks at about half price. Buying and selling calls and puts is hugely profitable, but highly risky. Both of these strategies are very susceptible to the effect of time decay. Best Stock Option Strategies

Investors are all familiar with the day trading trend, which is the shortest term money making platform in the stock market. If you seek expert opinion about day trading, you will get more of negative comments rather than positive criticism. But the expert opinion does prove true in case of impulsive buying decisions. To enter into profitable day trading in the stock market of India, it is greatly necessary that you are equipped with the complete knowledge of the field besides getting updated with the up-to-the-minute market moves so that you choose only potential stocks. Only then can day trading prove lucrative. If you are employed elsewhere and are not able to look into the trading matter well, it is advisable that you should not opt day trading. There are other trading options as well in the share market in India, which need not require your full time observation.

The stock market of India may prove fortunate for few while for others it may not be the right platform. There are instances of many who have turned bankrupt. ‘A little knowledge is a dangerous thing’ goes the saying. And gaining little knowledge and venturing into the share market in India seeing others making big money may prove dangerous for you. You may end up losing your hard earned money and regular losses will just prompt you to exit from the stock market scene. Strategizing and gaining complete knowledge before investing will certainly turn the stock market in your favor – a money making platform.

Strategize your goals and experiment with the different investing options in the stock market in India. Initially go for little investments so that even if you gain or face losses, you will soon learn the intricacies of the trade. Once satisfied, you can go for bulk investments. You may opt for all the three trading options, viz. day trading, short term trading and long term investment. At the same time if your source of livelihood is solely the stock market, you can diversify your investment goals further, such as investment in mutual funds, currency futures, commodity futures, and other investment products. You can thus maintain a balance of your investments and losses if any will hardly bother you. Trying different investment options will also let you know which one suits you the best and you can then invest in bulk in the said option.

Product Description
The summer and fall of 1998 witnessed some of the most turbulent financial markets the world has ever seen. The implosion of the Russian financial markets and investors’ ensuing flight to quality propelled the giant hedge fund, Long-Term Capital Management, to the brink of collapse and left the investment portfolios of many of Wall Street’s major banks and brokerage houses teetering on the brink. The US equity market dropped precipitously at the end of August … More >>

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