There are various options trading strategies that investors can use to speculate on the price movement of an underlying asset. Listed options allow traders to achieve exposure to, or hedge against, various underlying assets, including equities, bonds, commodities, and currencies. This article will discuss several of the more popular listed options trading strategies that investors can employ.
A long call
One simple options trading strategy is known as a long call. A long call is simply purchasing a call option on an underlying asset. The trader is bullish on the prospects of the asset and believes that the price will rise in future.
If the price rises, the trader will make a profit equal to the difference between the strike price and the new price, less the premium paid for the option. If the price falls, the trader will let the option expire worthlessly.
A long put
The long put is another pretty simple options trading strategy that investors can employ. A long put is the purchase of a put option on an underlying asset. The investor believes that the asset’s price will fall in the future and so buys a put option to hedge their position.
If the price falls, they will make a profit equal to the difference between the strike price and the new price, less the premium paid-for option. If the price rises, the trader will let the option expire worthlessly.
A short call
A short call is a popular options trading strategy that is the opposite of a long call. A short call is selling a call option on an underlying asset. The trader believes that the asset’s price will fall in the future and so sells a call option to another investor.
If the price falls, the trader will keep the premium paid for selling the option. If the price rises above the strike price, the trader is obligated to sell stock at the strike price.
A short put
A short put is also an options trading strategy that is the opposite of a long put. A short put is the sale of a put option on an underlying asset. The trader believes that the asset price will rise in the future and sells a put option to another investor.
If the price rises, the trader will keep the premium paid for selling the option. If the price falls below the strike price, the trader is obligated to buy the stock at the strike price.
A covered call
A covered call is another popular options trading strategy that involves buying shares of an underlying asset and selling a call option on those same shares. The trader or investor believes that the asset price will rise modestly in the future and sells a call option to another investor to generate additional income.
If the price rises, the trader will make a profit equal to the difference between the strike price and the new price, less the premium paid for selling the option. If the price falls, the trader will make a loss on their share position but will offset this with the premium received for selling the option.
A covered put
A covered put is an options trading strategy similar to a covered call, except that a put option is sold instead of a call option. The trader believes that the asset’s cost will fall modestly in the future and sells a put option to another investor to generate income.
If the price does fall, the trader will make a profit equal to the difference between the strike price and the new price, less the premium paid for selling the option. If the price rises, the trader will make a loss on their share position but offset this with the premium received for selling the option.
Conclusion
Options are a versatile tool that can speculate on the future direction of an underlying asset or hedge an existing position. The decision of which options trading strategy to use will depend on the investor’s circumstances and objectives. For more information on trading listed options from reputable UK broker Saxo Bank, visit now.
