More than awareness, as traders and investors, it pays to really know options strategy, the different types and their functionality. Given the volatility existing in the market, strategizing must be done to avoid potential loss. Yes, loss has always been part of the trading game but of course, that is not the goal – it never was. It is also not just about avoiding potential loss but for maximizing profit, above everything else. Basically, it is an intelligent gamble. Several factors have to be carefully considered and weighed.
Some people end up too attached to a specific strategy because if worked for quite a number of times. While others just go with the flow. That is, whatever friends and anyone they know (who have been into stock trading) apply, they as well do. Others who are wise enough are able to take advantage of the rich resources of the internet and/or make use of software or program that would try available strategies.
What then are the fundamental options strategies that have to be mastered?
One of these strategies is married put. This is when investors who purchased or owned assets purchase put option at the same time for the same number or count of shares. This is mostly used when investors are more of bullish on the price of assets and wants to guard themselves against losses that are short-term. It functions just like insurances. Another is the one called bull call spread. In this kind of strategy, simultaneous buying of call options and sell these options at a price higher than the price it was bought. The underlying asset and the expiration of the call options in this kind of strategy will be the same. Like the previous one, this is also done when the investor is bullish on the asset price.
However, when investors are not bullish on the asset price, alternative strategies have to be utilized. One of that is covered call. Investors make outright purchase of assets and at the same time sell or write call option on them. The volume of the assets owned by the investor should be equal to the count of the call option underlying assets. This is functional when investors are neutral or unstable about the asset price and would like to have additional profits or protect themselves from potential loss. But when they are sure about the decline of price, there are two strategies that can be employed, the bear put spread and bear call spread. Bear put spread is used when an investor is slightly bearish on the price. In this strategy, risks will be limited but so will the profit be. Bear call spread is similar to the previous one and is a complete opposite of married put.
There are actually more strategies aside from the stock trading strategies mentioned above. Risk quotient could well serve an investor. But the point is that the current status has to be assessed, including the factors that could possibly affect it and the applicable stock trading strategy.