When it comes to trading in any part of the world, your strategy can make or break your
Table of Contents
The Iron Condor
Used when volatility is low and generally provides a lower return than straddles or strangles, iron condors are usually not traded by new option traders because they take more time to develop correctly.
They significantly impact investors’ portfolios but can often be neglected when managing trades.
Covered Call Writing
The aim of covered call writing is for the stock price to remain unchanged until expiration, so you get to keep the premium, but if it rises above the strike price, you get to sell at that price.
Credit Spread
The credit spread is a time-honoured options trading strategy. If you are selling option premium to take advantage of time decay, you use the credit spread strategy.
Laddering
Laddering is an options trading technique that involves buying in-the-money calls and out-of-the-money puts on the same underlying security with different expiry dates.
The aim with laddering is for the options to expire at different times so that you can keep selling calls or put in premiums until your stock expires.
Straddles and Strangles
A vertical spread is a bullish or bearish strategy with limited profit potential and risk.
You buy (or sell) one option and sell (or buy) another option of the same class but different strike price further out-of-the-money (OTM).
The options have the same expiration date.
A credit spread consists of buying an option that is farther OTM than the option sold to collect less initial credit taken in when establishing this position.
The maximum loss on a vertical spread occurs if it expires worthless. On the flip side, if both options are in the money, you could end up with the maximum potential profit.
Butterfly Spread
The butterfly spread is also known as a range or time spread.
It is constructed by buying an out-of-the-money call and two puts on the same underlying security with the same expiration date.
The put options are generally at least one strike price apart from each other.
A lower striking long put is bought with a higher striking short put while simultaneously selling an even lower striking long call and even higher striking short call.
Rolling
Rolling your positions involves closing your current position to open another position on the same or different instrument but potentially with different risk/reward attributes.
Using this technique, a trader closes a position and moves it to later expiry date to get better pricing or avoid being assigned an exercise notice.
A rolling straddle involves closing the near term put and call legs of a straddle and simultaneously opening a further out-of-the-money put and further out-of-the-money call on the same underlying security with the same expiration date.
When done correctly, you can generate additional income from your options trading strategy without changing your initial outlook on the market.
Calendar Spread
A calendar spread is constructed by selling an option with a nearer maturity date while buying another option with a more distant expiry date to take advantage of the difference in time value between the two options.
The more distant option you buy is typically more OTM than the option you sell, which means you can generate an initial credit for entering this trade.
Covered Call Writing
The aim of covered call writing is for the stock price to remain unchanged until expiration, so you get to keep the premium, but if it rises above the strike price, you get to sell at that price.
It’s a winning strategy if your outlook on the underlying security is bullish during the life of the option contract.
Credit Spread
The credit spread is a time-honoured options trading strategy. If you are selling option premiums to take advantage of time decay, you use this strategy.
We suggest you sell a higher striking option and buy a lower striking option on the same underlying security with the same end date.
This strategy lowers your overall cost of entering this trade because you receive a more initial premium for selling to open than you pay when opening the spread to enter it.
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