Generally, people trade foreign currencies exchanges, stocks, bonds, etc. But options are a different security trading instrument that most of the people are not yet acquainted with. An option is basically a contract that gives an investor a right to buy and sell the underlying trading assets, such as securities, exchange traded funds (ETF), an index in previously determined price in the given period of time. Options can be purchased having accounts in the brokerages similar to other trading instruments. The options trading is strong because of its added income, leverage, protection that improves an individual’s portfolio.
Some basic strategies
Buying an option that later allows the investor to buy shares is known as ‘call option,’ and the action of buying an option that gives the right to sell shares later is called ‘put option.’
- Buying call: In the calling options, a simple strategy is to buy a covered call, or a naked call, or buy write. In this process, the investor must be ready to sell the investor’s shares at the short strike price or the set price. This reduces the risk of the investor and also fulfills the purpose of buying shares that are generating income.
- Married put option: In this married put strategy, an investor buys stocks of shares and a put option simultaneously. This put option lets the investor sell the purchased shares at the strike price. This strategy reduces the high risk of falling share prices. This actually works as the price floor.
- The bull call spread: In this call spread strategy, the inverter buys call options at a specific price and also sells the same quantity of calls at a set high price. Both the calls have the same validity. This strategy is for those who expect a definite rise in the stock price. This strategy reduces the premium cost of investors.
- The bear call spread: This is the opposite of the previous strategy. The investor buys calls at a specific price and sells the same number of calls at a strike lower price. Both the calls have the same expiry date and underlying instruments. This strategy is for the bearish investors who expect a fall in stock price.
- Straddle and Strangle: The straddle options includes simultaneously buying a call and a put option under identical underlying assets and expiry date. In the strangle, the investor buys an out-of-the-money call and puy option. When the investor becomes unsure about the stock price movement and high fluctuation, buying this strategy is very helpful. This strategy limits the chance of high loss and has the potential of unlimited gain.
Along with these options trading strategy, there is a more useful variety of strategies investors follow. This trading option can therefore limit high risks in the stock like NASDAQ: GRAL at https://www.webull.com/quote/nasdaq-gral, security exchange market for the novice or little experienced investors.
Disclaimer: The analysis information is for reference only and does not constitute an investment recommendation.