Long Straddle Option Strategy - Nine Powerful Options Strategies For Turbo Charging Your Returns in Any Stock Market Condition
While the bulk of your funds should be invested in stocks, using a system with a proven trading edge, a small percentage of your funds can be used with these 9 options strategies to turbo-charge your returns by allowing you to profit from any type of stock market situation. Long Straddle Option Strategy
Before we get into the 9 strategies, let's review some option basics:
1. An option is a contract to buy or sell 100 shares of a specific stock at a certain price by the third Friday in a certain month.
2. A call option is a contract to buy shares of a stock at the strike price by expiration. Since the value of a call option goes up when the stock goes up, the buyer of a call option is bullish, while the seller is bearish.
3. A put option is a contract to sell shares of a stock at the strike price by expiration. Since the value of a put option goes up when the stock goes down, the buyer of a put option is bearish, while the seller is bullish.
Now, let's look at these nine strategies, from most bullish to most bearish:
1. Long Call - This is simply buying a call option. This is the most bullish, and is a good strategy if you think that a stock will go up in price in a certain amount of time.
2. Bull Call Spread - This is buying a call at one strike price, and then selling short another call at a higher strike (the options should have the same expiration month). This is similar to a long call, except that it is slightly less bullish. The premium generated from the short call will offset some of the long call premium (thus reducing your maximum loss), but your profit is capped if the price reaches the strike price of the short call. In other words, if the stock continues to go up, you will not make any more money. Long Straddle Option Strategy
3. Short Put - This is writing a put contract, so that you agree to buy 100 shares of a stock from the put buyer. This is a very mild bullish position - if the market soars, it won't make as much as a long call or bull call spread, but it can also make you money if the stock stays unchanged or dips slightly.
4. Covered Call - This is short selling a call option when you already own 100 shares of the stock. Since you do not have to buy stock on the open market in order to fulfill the contract, this is considered the most conservative options strategy, and is the only one allowed in an IRA. It's bias is the same as a short put.
5. Long Straddle - This is buying a call option, and then buying a put at the same strike price and expiration. This is a strategy that is neutral in direction, but long volatility. In other words, you use this strategy when you think that a stock will have a big move in a short amount of time, but you are not sure if it will be up or down. This strategy will make money if the stock soars or tanks.
6. Short Straddle - The opposite of a long straddle. This is selling short a call and put that are both at the same strike and expiration. This is a strategy that is a bet against volatility. This position will make money if the stock stays unchanged or goes up or down only a little.
7. Short Call - This is writing a call contract, so that you agree to sell 100 shares of a stock to a call buyer. This is a very mild bearish position - if the market tanks, it won't make as much as a long put or bear put spread, but it can also make you money if the stock stays unchanged or goes up slightly.
8. Bear Put Spread - This is buying a put at one strike and selling another put (same month) at a lower strike. This is slightly less bearish than a long put. Again, your premium paid (max. loss) is reduced at the expense of capping your profits.
9. Long Put - This is simply buying a put option. This is the most bearish strategy, and is good if you think that a stock will go down in a certain amount of time. Long Straddle Option Strategy
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