Options trading involves buying or selling calls and put options in different market conditions such as bullish, bearish or neutral. As an F&O trader, you can use different strategies in these market conditions in order to maximize the profit potential and minimize the possibilities of loss.
In this article, you’ll get to know about the 5 most used strategies that you can use in intraday options trading.
5 Strategies for Options Trading
Call Options provide a right to buy the underlying asset and put options give an opportunity to sell the asset on the expiry date at the pre-decided price. Here are the different strategies that you can use in different market outlooks:
1. Bull Call Spread
Bull call spread is a bullish market strategy where you have to buy 1 ATM (at-the-money) call and sell 1 OTM (out-of-the-money) call. But you need to keep in mind that both the call options should have the same underlying asset and expiry date.
You can make a limited profit which is equal to the difference between the strike price of the two contracts and the premium amounts. On the other hand, you have to face a maximum loss equal to the net premium amount.
2. Bear Put Spread
This options trading strategy is related to the bearish market and you have to buy 1 ITM (in-the-money) put and sell 1 OTM put. Similar to a bull call, both puts should have the same underlying asset and expiry date.
Profit can go up to the difference between the net strike price minus the net premiums amount. You are exposed to the maximum loss of the net premium amount.
3. Synthetic Call
A bullish options strategy, synthetic call, involves buying a put contract for the stock that you have previously bought and you expect the price of the stock to rise in the future.
If your expectation is achieved, then you can earn unlimited profit. Also, the loss is capped at the premium amount paid to buy the put option.
4. Strip
Strip comes under the bearish options trading strategies list. In this one, you can buy 1 ATM call and 2 ATM put contracts. The prerequisite is to buy options having the same underlying stock, expiry date and strike price.
You can earn unlimited profit when the price of the stock falls. Loss is limited up to the point of the net premium amount.
5. Long and Short Straddles
Long and short straddles are a neutral strategy where you don’t predict the price movements. In a long straddle, you can buy the ATM calls and puts. The criteria are the same where the underlying asset, strike price and expiry date all are the same for each contract. Profit can go to any level and loss is restricted to a certain point.
Short straddle means selling the ATM call and put options. Loss is unlimited and maximum profit is equal to the net premium amount.
Conclusion
There are different options trading strategies that you can use in varied market expectations such as bull call, bear put spread, synthetic call, strip and long and short straddles. You can buy or sell different combinations of calls and puts in each strategy.
If you are looking for these strategies in a readymade view, then you can get them on the Dhan Options Trading App.
