Simple options strategies, Simple Option Strategies | Generate consistent monthly cash flow
Kevin Ott Regardless of whether you are a low-risk buy-and-hold investor or an active day trader, there are a few basic options trading strategies that you should know about.
When options are used properly, they are a powerful way to reduce risk in a portfolio and generate income. For the casual investor, who perhaps only simple options strategies stock once a month, the covered call option strategy is an amazing way to generate income with essentially no additional risk.
It only involves selling 1 call option for every shares of long stock. The strike price of the options contracts is yours to choose!
This is what makes covered calls so popular among buy-and-hold investors. Simple options strategies the stock rallies, the trader will profit, and if the stock sells-off, the trader will lose money, but the amazing thing about covered calls is that they cushion some of the downside movement.
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The only thing covered calls do is limit the potential max profit of a trade. But how frequently do stocks go to infinity?
Pretty sweet! With all of this said, some investors want more action.
Strategy No. 1: Buying Calls
For active traders who are comfortable with a little more risk, they can look into selling options without simultaneously having a position in the underlying stock. Why would anyone want to do this?
Well, the main reason is that the trade has no downside risk.
Selling options without covering the trade is highly risky, but that means the reward is also better. Additionally, it often requires less capital to sell options naked.
However, active traders willing to speculate in an attempt to generate higher returns are not just limited to selling calls. The other popular options tactic is to capture put option premium by selling puts either naked or cash-secured. Since this is effectively the opposite position of selling calls, instead of being long 1, shares to cover the position, the put seller would have to be short 1, shares to cover the position.
- By Lucas Downey Updated May 29, Traders often jump into trading options with little understanding of the options strategies that are available to them.
- 24/ 7 options trading
- A Simple Options Strategy for Everyone | The Motley Fool
- Simple Option Strategies | Generate consistent monthly cash flow
- 5 Simple Options Trading Strategies - NerdWallet
More information on options trading strategies and tips, like finding the best options brokers or learning the nuances of the option straddlecan be found at The Options Bro.