Here are some commonly used stock option trading strategies:
- Covered call: This involves selling a call option on a stock that you already own in your portfolio. This strategy generates income by collecting the premium from the sale of the call option, while limiting potential profit if the stock price rises above the strike price of the call option.
- Protective put: This involves buying a put option on a stock that you own in your portfolio, providing protection against a potential decline in the stock price. If the stock price drops, the value of the put option will increase, offsetting the losses in the stock.
- Long call: This strategy involves buying a call option, giving the investor the right to purchase a stock at a predetermined price (strike price) before the expiration date. This can be a bullish strategy used when you expect the stock price to increase.
- Long put: This strategy involves buying a put option, giving the investor the right to sell a stock at a predetermined price (strike price) before the expiration date. This can be a bearish strategy used when you expect the stock price to decrease.
- Bull call spread: This strategy involves buying a call option at a lower strike price and selling a call option at a higher strike price, both with the same expiration date. This limits both the potential profit and potential loss, and is used when you expect the stock price to increase but not too dramatically.
- Bear put spread: This strategy involves buying a put option at a higher strike price and selling a put option at a lower strike price, both with the same expiration date. This limits both the potential profit and potential loss, and is used when you expect the stock price to decrease but not too dramatically.
- Iron condor: This strategy involves selling both a call option and a put option at a higher and lower strike price respectively, while also buying a call option at an even higher strike price and a put option at an even lower strike price. This creates a range in which the stock price can fluctuate, generating income through the sale of the options, while limiting both the potential profit and potential loss.
It’s important to note that these strategies involve varying levels of risk and should be approached with caution. It’s recommended that investors do their own research and consult with a financial professional before engaging in any stock option trading.