is a complete guide to everything involved in options trading, covering all the basics of options contracts, the options market and what.
Table of contents
Short Put Calendar Spread. Short Ratio Call Spread.
Informed Option Trading Strategies
Short Ratio Put Spread. Short Stock. Short Straddle. Short Strangle. Synthetic Long Put. Synthetic Long Stock. Synthetic Short Stock. Strategies by Market Outlook Bullish Outlook.
Bearish Outlook. Neutral Outlook. Strategies by Objective Hedge Stock. Acquire Stock. Produce Income.
Picking an Options Strategy
Strategies by Volatility Implied Volatility Increase. Implied Volatility Decrease. Sharp Move Up or Down. Advanced Concepts. Index Options. Equity vs. Understanding Option Greeks. Putting It All Together. Black-Scholes Formula. A long option position acts as an insurance policy by establishing a worst cast price and a loss limited to your initial premium paid for the option in case your market view turns out to be wrong. Consider an example where you have a bullish view and so buy one call option on shares of stock with a strike price of A.
Your downside is limited to the premium you paid in case the market declines, while your upside is potentially unlimited if the market rises. Your breakeven is equal to the strike price of the option plus the premium paid. A payoff diagram of a long call option with a strike price of A. Source: TheOptionsProphet. In the option payoff diagram above, the blue line represents the payoff of a call option position. Losses are limited to the initial premium paid below the strike price A, while the breakeven of the strategy is the point at which the diagonal line crosses the X-axis.
If your broker allows you to, you can sell put or call options as a way of taking in premium money when your market view is respectively bullish or bearish on the underlying stock. While your profits are limited to the premium paid, your potential losses would be unlimited in case your market view is wrong.
Consider a situation where you are bearish and decide to sell 1 call option on shares of stock with a strike price of A. Your downside is potentially unlimited in case the market declines, while your upside is limited to the premium you took in if the market rises. Your breakeven is equal to the strike price of the stock minus the premium paid. A payoff diagram of a sold call option with a strike price of A. The breakeven of the strategy is the point where the diagonal line crosses the X-axis. Source: Fyers. If you have an underlying long or short position in an asset, then you can sell call or put options against it.
Many choose to increase the income on stock holdings in relatively stagnant market conditions by selling covered calls, which is sometimes also called a buy-write strategy. If the option ultimately ends up being exercised, then you will need to deliver your underlying position into the option contract.
This options strategy buffers any potentially unlimited losses you might take on the underlying position in the amount of the premium you receive for selling the option. In addition, your gains are limited to the premium you received beyond the strike price of the option.
Note that this strategy has the same payoff profile as a short option position. Say you sell a call option on shares of a stock you own. If the stock price rises to the strike price of the call, you will simply deliver the stock into the call option when it is exercised, and any losses on the call option beyond that point are offset by gains on the underlying long stock position. If the stock price falls, then you will get the premium from selling the call option to buffer any losses on your stock position.
Source: VantagePointSoftware. Options traders can use equal amounts of either calls or puts to create bullish or bearish strategies with limited upside and downside. As an example, a trader with a mildly bullish view could buy a call at a lower strike price and sell a call at a higher strike price. This strategy would have a reduced net premium compared to buying the lower strike price call alone, although traders would not be able to profit from a rise in the underlying asset beyond the higher strike price of the sold call.
A payoff diagram of a bull call spread that involves buying a call with a strike price of A and selling a call with a strike price of B. Not every online broker will allow you to trade options, so make sure you select a broker that does.
You will also want to check that any online broker you are considering is duly regulated in their local jurisdiction and takes clients from your country. Moomoo is a commission-free mobile trading app available on Apple, Google and Windows devices. A subsidiary of Futu Holdings Ltd. Securities offered by Futu Inc. Moomoo is another great alternative for Robinhood. Basic Idea of Pay-off diagram-Part 2 How to draw pay-off diagram of any single option in excel How to draw pay-off diagram of any options strategy in excel Section 5: Concept of Option Strategies.
Basic Concept of Option Strategies Some Useful Option Trading Strategies Section 6: Option Strategy 1. Basic Discussion of Option Strategy 1 Explanation of option strategy 1 with Example Explanation of the case study under different situation Adjustments of Option Strategy 1 Practical Example with Adjustments Section 7: Option Strategy 2.
Options Trading Strategies
Basic discussion of the option strategy 2 Calculation of different items of this strategy Explanation of 1st practical Example Explanation of 2nd practical Example Adjustment of Option Strategy 2 Section 8: Option Strategy 3. Basic Discussion of Option Strategy 3 Explanation with a practical Example Points to be considered before opening this strategy What are Options Trading Strategies? Why This Options Trading Course? Who Can Start Learning Options trading?
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