Options strategies are methods in which traders buy, sell, or combine options to match their investment outlook. Here are a few examples:
- Covered Call: An investor sells a call option on securities they own. This can provide additional income, but they may have to sell the securities if the call option is exercised.
- Protective Put: An investor buys a put option for securities they own. This sets a floor price so that even if the market price drops drastically, the investor can sell at the put option’s strike price.
- Bull Call Spread: An investor buys a call option and sells another with a higher strike price. The aim is to benefit from a moderately bullish move.
- Bear Put Spread: An investor buys a put option and sells another with a lower strike price. The aim is to benefit from a moderately bearish move.
- Long Straddle: An investor buys both a call and a put option at the same strike price, hoping for a big move in either direction.
- Iron Condor: An investor sells an out-of-the-money put and call, and also buys a further out-of-the-money put and call. This is a neutral strategy aiming to benefit from low volatility.
- Butterfly Spread: This combines a bull spread and a bear spread with three strike prices. It can be created using call or put options and is designed to have a high return if the stock remains at a certain price.
Each strategy comes with its risk/reward profile and is used in specific market conditions. These strategies require a solid understanding of the options market to implement correctly.