http://www.options-trading-education.com/6613/basic-options-strategies/
Basic options strategies
In trading options, a trader seeks to anticipate price changes of underlying stocks, commodities, or currency pairs. He or she buys or sells options contracts with the expectation of profit. In doing so the trader uses any of several basic options strategies. In trading options the buyer can purchase a call contract. In doing so he pays for the right to purchase a given stock, commodity, or currency at a set price. This is called the strike price and it does not change for the duration of the options contract. The trader purchases a call on an equity which he believes will rise in price. When this happens he can execute the contract and buy the stock for less that its current value. More commonly the options trader simply sells his now-more-valuable call contract and pockets his profit. In purchasing a put a trader pays for the right to sell a stock, commodity, or currency at the strike price not matter how low the price might fall. As with a call, the trader can exit his position by selling the contract, ideally at a profit. Understanding calls and puts is the beginning of understanding basic options strategies for online options trading.
Basic Options Strategies
Profit from basic options strategies rely on the analysis of the equity in question. Traders use both fundamental and technical analysis of stocks, commodities, or currencies as a guide. The key to this process is to recognize the intrinsic value of the equity before its price changes. Traders often do more than buy or sell a put or a call. Here are a few basic options strategies.
Trading Options when One Owns a Stock in Stock Option Trading
Long Call
A trader who owns a stock may want to buy more but may also be unsure about whether it will rise in price in the near future or not. He can purchase a call and lock in a good price at which to buy should the stock rise in price.
Long Put
This is one of the more common basic options strategies for owners of rapidly rising stocks. A trader owns a stock that has gone up rapidly. He does not want to exit his position because he believes that the stock still has upside potential. However, he is concerned about a big correction. Thus he buys puts on the stock. This gives him the right to sell at the current price, even if the stock price plummets. A long put is often a sort of insurance that a stock investor purchases.
Trading Options when One Does Not Own a Stock
Short Call
A short call is perhaps the most commonly use and most basic options strategies. The trader expects a stock to rise in price. He purchases a call on the stock. The stock goes up in price and he sells his contract for a profit. He is under no obligation to do so and only executes the contract when doing so is profitable.
Short Put
This is one of the basic options strategies for contrarians. When a trader expects a stock to fall in price he can purchase a put.
2. In trading options, a trader seeks to
anticipate price changes of underlying
stocks, commodities, or currency pairs.
http://www.options-trading-education.com/6613/basic-options-
strategies/
3. He or she buys or sells options contracts
with the expectation of profit. In doing so
the trader uses any of several basic options
strategies.
http://www.options-trading-education.com/6613/basic-options-
strategies/
4. In trading options the buyer can purchase a
call contract. In doing so he pays for the
right to purchase a given stock, commodity,
or currency at a set price.
http://www.options-trading-education.com/6613/basic-options-
strategies/
5. This is called the strike price and it does not
change for the duration of the options
contract.
http://www.options-trading-education.com/6613/basic-options-strategies/
6. The trader purchases a call on an equity
which he believes will rise in price.
http://www.options-trading-education.com/6613/basic-options-
strategies/
7. The trader purchases a call on an equity
which he believes will rise in price.
http://www.options-trading-education.com/6613/basic-options-
strategies/
8. The trader purchases a call on an equity
which he believes will rise in price.
http://www.options-trading-education.com/6613/basic-options-strategies/
9. The trader purchases a call on an equity
which he believes will rise in price.
http://www.options-trading-education.com/6613/basic-options-
strategies/
10. When this happens he can execute the
contract and buy the stock for less that its
current value.
http://www.options-trading-education.com/6613/basic-options-
strategies/
11. More commonly the options trader simply
sells his now-more-valuable call contract
and pockets his profit.
http://www.options-trading-education.com/6613/basic-options-strategies/
12. In purchasing a put a trader pays for the
right to sell a stock, commodity, or currency
at the strike price not matter how low the
price might fall.
http://www.options-trading-education.com/6613/basic-options-
strategies/
13. As with a call, the trader can exit his
position by selling the contract, ideally at a
profit.
http://www.options-trading-education.com/6613/basic-options-
strategies/
14. Understanding calls and puts is the
beginning of understanding basic options
strategies for online options trading.
http://www.options-trading-education.com/6613/basic-options-
strategies/
15. Basic Options Strategies
Profit from basic options strategies rely on
the analysis of the equity in question.
http://www.options-trading-education.com/6613/basic-options-strategies/
16. Traders use both fundamental and technical
analysis of stocks, commodities, or
currencies as a guide.
http://www.options-trading-education.com/6613/basic-options-
strategies/
17. The key to this process is to recognize the
intrinsic value of the equity before its price
changes.
http://www.options-trading-education.com/6613/basic-options-
strategies/
18. Traders often do more than buy or sell a put
or a call.
http://www.options-trading-education.com/6613/basic-options-
strategies/
19. Here are a few basic options strategies.
http://www.options-trading-education.com/6613/basic-options-
strategies/
20. Trading Options when One Owns a Stock in
Stock Option Trading
http://www.options-trading-education.com/6613/basic-options-
strategies/
21. Long Call
A trader who owns a stock may want to buy
more but may also be unsure about whether
it will rise in price in the near future or not.
http://www.options-trading-education.com/6613/basic-options-
strategies/
22. He can purchase a call and lock in a good
price at which to buy should the stock rise
in price.
http://www.options-trading-education.com/6613/basic-options-
strategies/
23. Long Put
This is one of the more common basic
options strategies for owners of rapidly
rising stocks. A trader owns a stock that has
gone up rapidly.
http://www.options-trading-education.com/6613/basic-options-
strategies/
24. He does not want to exit his position
because he believes that the stock still has
upside potential.
http://www.options-trading-education.com/6613/basic-options-
strategies/
25. However, he is concerned about a big
correction.
http://www.options-trading-education.com/6613/basic-options-
strategies/
26. Thus he buys puts on the stock.
http://www.options-trading-education.com/6613/basic-options-
strategies/
27. This gives him the right to sell at the current
price, even if the stock price plummets.
http://www.options-trading-education.com/6613/basic-options-
strategies/
28. A long put is often a sort of insurance that a
stock investor purchases.
http://www.options-trading-education.com/6613/basic-options-strategies/
29. Trading Options when One Does Not Own a
Stock
http://www.options-trading-education.com/6613/basic-options-
strategies/
30. Short Call
A short call is perhaps the most commonly
use and most basic options strategies.
http://www.options-trading-education.com/6613/basic-options-
strategies/
31. The trader expects a stock to rise in price.
http://www.options-trading-education.com/6613/basic-options-
strategies/
32. He purchases a call on the stock.
http://www.options-trading-education.com/6613/basic-options-
strategies/
33. The stock goes up in price and he sells his
contract for a profit.
http://www.options-trading-education.com/6613/basic-options-strategies/
34. He is under no obligation to do so and only
executes the contract when doing so is
profitable.
http://www.options-trading-education.com/6613/basic-options-
strategies/
35. Short Put
This is one of the basic options strategies for
contrarians.
http://www.options-trading-education.com/6613/basic-options-strategies/
36. When a trader expects a stock to fall in price
he can purchase a put.
http://www.options-trading-education.com/6613/basic-options-strategies/
37. This gives him the right to sell a stock that
he does not own.
http://www.options-trading-education.com/6613/basic-options-
strategies/
38. If the stock falls in price as expected
http://www.options-trading-education.com/6613/basic-options-
strategies/
39. In our next articles we will talk about other
basic options strategies such as a long
straddle or short straddle.
http://www.options-trading-education.com/6613/basic-options-
strategies/
40. For more insights and useful information
about options and options trading, visit
www.Options-Trading-Education.com.
http://www.options-trading-education.com/6613/basic-options-
strategies/
