If you want to profit from options trading, you need to know the best strategies used by option traders. Here we list a few of them. But first, let’s define what are option trading strategies.

What Are Option Trading Strategies?

Option trading strategies are a way to make money in the options market. There are many different option trading strategies, and each one can be used to make money in different ways. Some common option trading strategies include buying calls and puts, using options as a form of leverage, and trading options on margin.

How Can Option Trading Strategies Be Used to Make Money?

Option trading strategies can be used to make money in a variety of ways. Some common ways to make money with option trading strategies include buying calls or puts and using options as a form of leverage, trading options on margin, or hedging a position. It’s a profitable business to pursue if you know what you’re doing.

How Do I Choose the Right Option Trading Strategy for Me?

The best way to choose an option trading strategy is to use a systematic approach. This means that you should use a strategy that has been proven to be successful in the past. You can also try different strategies until you find one that works best for you.

What Are the Different Types of Option Trading Strategies?

There are three main types of option trading strategies: buying calls, buying puts, using options as leverage, etc. Here we will present 16 strategies.

Buying out-of-the-money options

It is a popular strategy among experienced options traders. It involves buying options with strike prices that are lower than the current stock price. This way, you stand to make a profit if the stock price goes up. And even if it doesn’t, you’ll still have time on your side since these options will eventually expire worthless if the stock price doesn’t move in your favor.

Selling options close to the money

It is the opposite of the first strategy. You’ll sell options with strike prices close to the current stock price here. The idea is to take advantage of the time value decay of options. This way, you can profit even if the stock price doesn’t move in your favor.

Writing covered calls

It is a popular strategy among income-seeking investors. It involves writing call options on stocks that you already own. By doing so, you collect the premium from the option sale. And if the stock price goes up, you may also get to sell your shares at a higher price. However, if the stock price falls, you could end up having to sell your shares at a lower price.

Buying put options

It is a strategy used to expect the stock price to go down. You buy put options with a lower strike price than the current stock price. This way, you stand to make a profit if the stock price falls. And even if it doesn’t, you’ll still have time on your side since these options will eventually expire worthless if the stock price doesn’t move in your favor.

Selling naked puts

It is a more risky strategy than buying put options. It involves selling put options without owning the underlying stock. If the option is exercised, you’ll have to buy the stock at the exercise price. And if the stock price falls, you could end up losing money.

Core calls

Unlike a long call or long put, a core call is a strategy that is placed on the current long position in the underlying asset. This is basically a reverse call that is sold at a price that covers the size of the current position.  Thus, the cord call writer option accumulates premium as income, but at the same time limits the upper possibilities of the basic position.

Call Ratio Back Spread

Call ratio back spread is one of the easiest options trading strategies and this strategy is applied when one is suffering from a sharp rise in a stock or index. In this strategy, traders can make unlimited profits when the market goes up and limited profits if the market goes down.

Beer Call Spread

Beer Call Spread is one of the 2-league options trading strategies that option traders implement in the market with a ‘slightly bearish’ outlook.

Long and short strip

Long Stridel is one of the easiest neutral options trading strategies of the market that is implemented and when P&L is implemented it does not affect the direction in which the market moves. This strategy involves buying ATM calls and putting options.  It should be noted that both the options should be of the same basic, the same termination, and the same strike.

Long and short butterfly

The butterfly spread is one of the neutral option trading strategies that combines bull and beer spreads with a fixed risk and limited leverage.  With higher and lower strike prices, options have the same distance from money options.

Long Butterfly call spreads include: buying an ITM call option, writing two ATM call options and then buying an OTM call option.

Long and short Iron Condor

Iron Condor is an option trading strategy that includes two pots (one long and one short) and two calls (one long and one short), and four strike prices.  Everyone should have the same expiration date.

Buying call options

It is a strategy used when you expect the stock price to go up? You buy call options with a higher strike price than the current stock price. This way, you stand to make a profit if the stock price rises. And even if it doesn’t, you’ll still have time on your side since these options will eventually expire worthless if the stock price doesn’t move in your favor.

Selling naked calls

It is a more risky strategy than buying call options. It involves selling call options without owning the underlying stock. If the option is exercised, you’ll have to sell the stock at the exercise price. And if the stock price falls, you could end up losing money.

Buying straddles

It is a strategy used when you expect a big move in the stock price, but you’re not sure which direction it will go. You buy both a call option and a put option with the same strike price and expiry date. This way, you profit no matter which way the stock price moves.

Selling straddles

It is the opposite of buying straddles. It involves selling both a call option and a put option with the same strike price and expiry date. And like with buying straddles, you profit no matter how the stock price moves. But unlike buying straddles, you don’t have to pay any upfront costs.

Spreads

It is a more general term that refers to any strategy that involves buying and selling options with different strike prices and expiry dates. This way, you can profit no matter which direction the stock price moves.

In Conclusion

Option trading strategies can be a great way to make money in the options market, and each one can be used to make money in different ways. When choosing an option trading strategy, it is important to consider your risk tolerance and goals.

Here we listed several different strategies that you can use when trading options. And while some of them are riskier than others, each has its own unique set of benefits and risks. So it’s essential to carefully research each one before deciding which one to use in your trading plan. For more info on strategies used by option traders, check out Saxo Bank .