The option is a derivative instrument and can intimidate beginners. In order to make option trading easy, traders can use option trading strategies. Option trading strategies are based on various factors such as market trends, risk metrics, underlying assets, and more.
Knowing these strategies will help you as a trader find entry and exit points and make informed decisions. In this article, we will go through some of the top option strategies.
Best Option Trading Strategies
Some of the top option trading strategies used by traders in India are as follows. You can also enroll in an online option trading course by Upsurge.club to learn these strategies in detail.
1 Bull Call Spread
Bull call spread is one of the most popular trading strategies among option traders. Here the trader buys one call option at At-The-Money and sells one call option at Out-Of-The-Money. Two call options are utilized in bull call spread and a range is created.
Both options need to have the same underlying asset and expiration date. Profit is gained with this strategy when the underlying stock price increases. However, the profit here is limited to spread minus net debit. The loss can occur if the underlying asset’s price falls.
2 Bull Put Spread
A bull put spread is a quite similar technique to a bull call spread and is exercised when the traders are a bit positive about the underlying asset’s direction.
Under the bull put spread strategy, the trader creates a range by utilizing two put options with different strike prices and the same expiration date. The trader here buys one put option that is Out-Of-The-Money and at the same time sells one put option that is In-The-Money.
Profit is earned by traders if the underlying asset’s price such as stocks increases on or before the expiry date. A loss occurs if the underlying asset’s price goes below the strike price of the long-put option.
3. Long and Short Butterfly
Long and Short butterfly spread is a neutral option strategy that combines bull and bear spreads but with fixed risk and limited profit. The distance between the option with a higher strike price and a lower strike price is the same as the At-The-Money option.
In the long butterfly call spread, one In-The-Money call option is purchased, two At-The-Money call options are sold, and one Out-of-The-Money call option is bought.
In a short butterfly spread, one In-The-Money call option is sold, while two At-The-Money call options are bought, and one Out-Of-the-Money call option is sold.
4. Long and Short Iron Condor
Iron Condor is one of the best option trading strategies. Here there is one long and one short put as well as one long and one short call with different strike prices.
All the contracts need to expire on the same date. The highest profit is earned when the underlying asset price is between the middle strike price at the time of expiry.
Conclusion
In this article, we have listed some of the top option strategies used by traders in India. A trading strategy provides a road map to determine how to trade during the market timings. You can also learn in detail about these strategies through option trading courses online from Upsurge.club.
Rahul Kumar is a passionate educator, writer, and subject matter expert in the field of education and professional development. As an author on CoursesXpert, Rahul Kumar’s articles cover a wide range of topics, from various courses, educational and career guidance.
