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Option Trading Strategies
Option Strategy - this is usually a set of transactions according to various options and sometimes the underlying asset in one's investment portfolio. Depending on market expectations of behavior can be distinguished bullish, bearish and neutral strategy.
Bullish strategies - usually based on increasing the value of the underlying asset, bearish strategies - suggest reducing the basic value of the asset in the future, neutral strategy - used when a player puts on finding price of the underlying asset at the current level.
With the increasing volatility of the option price rises and falls with the fall with the passage of time options "out of the money" to lose its value. The simplest strategy - buy Call option or Put. The main attraction of the purchase of such options in high leverage and limited risk. You can invest very little money, and get a great yields, if the price goes in the right direction, in addition, such strategies are useful for hedging existing positions in the underlying asset. Just simple, but risky sales are Call and Put options, t. To. The profit potential is limited to the premium received and the loss can be unlimited. In this case, the possible risk for the most common restrictions apply strategy "covered Call" and "covered the Put", they assume the sale of options and simultaneous purchase or sale of the underlying asset, which increases the potential profits and reduce losses. More complex strategies are «Straddle». Straddle - strategy, consisting of a Call Option and Put option with the same strike price and the same expiration date, it rascchitana on the volatility of the market growth in the near future. Strangle, same as the Straddle, only more economical strategy, t. To. Call and Put options have different strike price, and the premium accordingly less. Buying «Strangle» carried out, if you expect a significant price fluctuations, but not enough funds for the purchase of «Straddle». Another group of option strategies "spreads" - they are one long and one short call option on the underlying asset is one where both options either Call or Put.
Another variation option "spread" strategies are proportional spreads, they are based on the difference in the number of bought and sold options. Such strategies are attractive and allow you to limit the risks on the one hand the market movement. The simplest form of proportional strategies include proportional Sale Call and Put options prorated sales, which consist of sales of a large number of options and the simultaneous purchase or sale of the underlying asset. But unlike coated Call and Put, such strategies are left unlimited risk due to the large number of naked options. And the most interesting and challenging strategy is "Butterfly" is a speculative strategy, focused on the oscillation of prices in a given corridor, in this case, except for the sale of "Straddle" investor insures position "Straddle" buying other strike prices.
Оptions contracts trading strategies
The market option gives the trader a lot of opportunities to make a profit because of its volatility, t. E. On the forecast of their dynamics, rather than driving directions, as well as by hedging positions in the stock market. Call option - is the right to buy an asset at a certain day and at a fixed price. Option Put - the right to an asset sale. Buying a call option assumes the fixed losses and is theoretically unlimited profit. Sale option, is to receive a fixed income, the amount of premiums net of commission broker in this case the risk is theoretically unlimited. Strategy - a set of actions for inclusion in the list of options with a specific investment objective. An important concept is an optional strategy point of payback, the price level at which the ratio of profit and risk of the option at the time of execution is equal to zero.
In the options market there are many different strategies, both simple and complex. For example, sales of "dual option" - is the simultaneous sale of two options Call and Put in the hope that the market will be in a certain price range, and the price of these options over time will diminish. Two simultaneous purchase contracts and Call Put, based on unidirectional trend at the outlet of the price range, called "straddle purchase." A frequent case of purchase or sale of an option is a double «Straddle», t. E. The simultaneous purchase of two options for the purchase and sale of the same «strike» (strike price). Purchase «Straddle», is based on the trend, sales based on the movement in the range. There is «Strangle», it differs from «Straddle» that strike the Put option is less than the strike Call contract. Another strategy, optional «spread» is the purchase or sale of option contracts of the same type. "The bullish spread» is to buy two contracts with different Call «strike», the exercise price of the option must be less than the cost of the goods. "Bear spread», is to buy two contracts with different Put «strike», with the price of the first to be greater than the second. Operations building a "bull" and "bear" spread is held in each case based on the growth and decline in the underlying asset value.
Most traders in the options market using complex options strategies, which are a combination of simple, one of them is «Back spread», a combination of horizontal and vertical spreads, "Butterfly" - a strategy based on the expectation of fluctuations in the corridor, the sale "Straddle" simultaneous «Strangle» purchase, and many others.
Options help to significantly increase the risk-earnings ratio of the investor, but at the same time, complex options strategies require a great deal of professionalism of the manager.
"Straddle" strategy in the options market
Optional market offers plenty of opportunities for both professional as well as for the novice player in the stock market, but the search of the valuable ideas involves serious work, and the use of a special option strategies. One of them is the strategy of «Straddle». In a general sense «Straddle» is the simultaneous purchase and sale of different types of options with the same strike prices and expiration dates of contracts. Its main task is to reduce the potential risk and increase profitability for one of the parties, and for the other to maximize the income earned in an environment where investors are willing to pay for a risk much more fair price.
As with any strategy at «Straddle» there are buyers and sellers. Buyer «Straddle» buys Call and Put options with the same strike price and expiration date of the contract. It is used by the players, who believe that the volatility in the market in the future will be much higher than at present. The most effective such actions in moments of lull in the market in the near future when important events are planned, yield economic news, or the output of important macroeconomic data. Sometimes, such an event could be a way out of the financial statements. Profit buyer «Straddle» is not limited, it occurs when the movement of the underlying asset in the opposite direction over a certain interval, which is determined by the amount spent on the purchase of divergent types of options. For example, if the option Call and Put option cost 3,000 rubles, and the price of the underlying asset at the moment is 50,000, the price movement at the time of option expiry must exceed the amount of the option premium (6,000 rubles). If the price of an asset will not go above 56000 or below 44000, the buyer will incur a loss Straddle, which however, is limited to the sum of premiums. Straddle sales strategy is the sale of Put and Call options at the same strike price and expiration date of the contract, it should be used when market volatility is high and investors are willing to pay a higher risk premium. At the same time there is reason to believe that at the time of expiration to lull the market, and the price will not change significantly compared to the current moment, in this case, it is possible to get a double profit. If you look at the last example of this profit will be 3000 for the Put, and 3000 for the Call option, but the seller «Straddle» should be especially careful, because in the case of sudden changes in prices, or panic in the market, its loss is not restricted.
«Straddle» One of the most common strategies in the options market among private investors. The undoubted advantage is its low risk and the ability to earn good points, when the players are not ready for any sudden movements on the market, but for good reason. Keep in mind that when working with options, is very important practice proper money management, as in the case of unfulfilled expectations, the investor loses all the money invested in the market. It is necessary to consider all the factors in the options price movements, only the profitability of the market will be consistently high.
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