Simple Option Trading Strategies

There are many ways for you to incorporate options trading strategies into your portfolio and some strategies are more straight forward than others. While you are learning how to trade options you may want to stick to long options trading strategies since as the buyer the risk will be the premium money you pay up front to own the option.

The simplest way in which people will incorporate options into their trading is with straight options trading strategies. Based on your particular trading strategy, you can buy a call on a futures market that you think is moving or may move higher. Or you may buy a put on a market you think is moving or will move lower. Using what you learn about options, you can look at a market and know that you will probably have to pay more for an option that is at or in-the-money. Out-of-the-money options trading strategies will be priced based on how likely it is that they will be in-the-money at or before expiration of the option contract.

If the futures market moves in the direction of your option’s strike price or moves through it, you can exercise your right on that contract and offset the resulting position with a futures market transaction and possibly collect a profit. If the market does not reach or trade through your option’s price, it will expire worthless and you have, in effect, forfeited the premium. You can also sell an option prior to expiration for more or less premium than you paid. Exiting, writing or selling options can also be an important part of the planning of your options trading strategies.

Option spreading techniques are worth learning how to identify and trade. Bull spreads and bear spreads are well known options trading strategies. The idea behind these option trading strategies is that the sale of a further from the money option will offset some of the initial cost of your option. It will put a ceiling on your profit potential but it does take some money off the table when you are trying for a particular directional move in the futures market.

Trading in futures and options involves a substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.