Although options trading is often considered risky (and it certainly can be), it is generally both safer and much more profitable than stock trading. The wonderful thing about options trading is that allows for a huge variety of strategies to be developed that all have differing risk profiles. Even though broker fees for options trading are significantly higher than those for almost any other kind of trading, this is easily offset by the huge profitability available.
The reason that options trading has attracted the reputation of being super risky is that many traders, driven by pure greed, have tried to achieve maximum returns in the minimum time. Insanely huge profits are definitely possible, but when managed with a greed motive, crash-and-burns are inevitable. The key to successful option trading is to "own" a strategy, to know it intimately, and to use it consistently and with clearly defined trading rules.
These are (in my opinion) the absolute best options trading strategies that minimise risk and give very respectable profits:
Selling Credit Spreads - with almost no work, and about 30 minutes a week, it is possible to grow your portfolio by 10-15% every month. Success depends on simplicity, and this is not a strategy suitable for hyperactive traders or those who love to over analyse everything. All you need to know is how to carry out a simple trend analysis on the market and on your group of carefully selected stocks. This strategy is very profitable, and is easier than falling off a bull at a rodeo (and much less painful). Selling Naked Puts. This strategy really only works in an upward trending market, and has a somewhat higher margin requirement than that of credit spreads. You can get similar returns, and the risk profile is just as low. The great thing is that, like credit spreads, you get your profit up front. Buying and selling DITM (Deep-in-the-money) options. This is a great swing trading strategy, and enables you to effectively buy stocks at about half price, and so double your profit. Because your trades are all short term (3-10 days), you are not concerned about dividends or other factors relating to buying and holding stocks, but you do benefit because the price movement of the option that you purchased is exactly matched by the price movement of the stock. Selling Covered Calls - if you own a stock, you can effectively reduce the cost of that stock by selling covered calls on that stock every month. This is a strategy that stock traders should not be doing without, but don't use it if you own stock for sentimental reasons - stock trading must be your business. So, if you occasionally get called out and end up selling your stock, you can quickly move on to the next one. Complex strategies, like straddles, strangles, iron condors and butterflies. These are all low risk, highly profitable strategies. Their only disadvantages are that they are all expensive (either expensive options, or higher broker fees because of the number of trades involved).
I have listed selling strategies in my top five list, simply because there is a rule of thumb in options trading circles that say that "90% of options buyers lose". The corollary of this that 90% of options sellers must be winning!
The Best Five Option Trading Strategies Check For The New Release in Health, Fitness & Dieting Category of Books NOW!
Check What Are The Top Cooking Books in Last 90 Days Best Cheap Deal!
Check For Cookbooks Best Sellers 2012 Discount OFFER!
Check for Top 100 Most Popular Books People Are Buying Daily Price Update!
Check For 100 New Release & BestSeller Books For Your Collection
Choosing the best option trading strategy for your business model is easy if you have the right information at your fingertips. It is also possible to over analyse, leading to analysis paralysis, so you need to know exactly what type of analysis to carry out for any given strategy. For example, when trading credit spreads, naked puts and covered calls, you really only need to know about trend analysis. All of this, including information on options brokers, can be found at Swing Trading Options.
Option trading in the world of stock market has a lot of income potential and it is full of monetary benefits if you pick and follow the right strategy.
ReplyDeleteOptions Trading