Option Strategy | Best Option Trading Strategies

Traders always treat options as a complex financial instrument as lack of knowledge on options and the way it moves will result in a hit to the financial standing of the trader. To reduce the impact of the blow, the trader of options takes undue pain and effort to learn how the options trading works and the best strategies that will work under various circumstances.

The option trading strategy application varies with the experience of the trader in options trading, the volatility of the market, the future turn of the market, the underlying goal of the trader trading in options, etc. Once the intention is clear-cut, the number of option trading strategies becomes minimal and the knowledge of the same can go a long in pulling down the risk involved in the transaction. Lower the option trading risk, and better will be the chances for adding more money into your pocket.

A new entrant into the option market can make use of the simple option trading strategies like writing covered calls that are relatively simple to understand and implement in the market. But, a professional trader, who enjoys years of experience in the market, can go for option trading strategies like spreads and collars that permits a trade-off.

The goal behind the trading of the option also determines the trading strategy to be adopted. The day option trading will require the trader to keep closer watch on the option market fluctuations and the stock volatility, and to make the exit before the day ends. There may be times when he has to make a stop loss to reduce the amount of loss. The option strategy to be applied for day trading options is different from that of the other options held for longer period.

Another element that defines the option strategy that is to be administered is the option market movement. The trader of options has to evaluate the future movement defining whether it is bullish and bearish. In a highly bullish volatile market the trader has to administer long straddle, long strangle, short condor or short butterfly. In a bearish volatile market, employ short straddle, short strangle, ratio spreads, long condor or long butterfly. Where the option trader is not aware of the turn that will be taken by the option market, he makes use of the neutral option trading strategies or the non-directional option trading strategies to determine the price movements of the underlying stock option prices like the guts, butterfly, condor, straddle, strangle, or option trading risk reversal.

The underlying intention behind the usage of option strategy is to minimize the risk and thereby increase the return.