November 11, 2024

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Diving into Listed Options: Advanced Strategies for Traders

Diving into Listed Options: Advanced Strategies for Traders

Listed options are a popular form of derivatives trading that allows traders to potentially capitalise on market movements without taking ownership of the underlying asset. Successful options traders must develop tailored strategies and techniques as with any trading instrument. The key to success lies in understanding which advanced strategies are available and determining which will work best for a particular situation. This article outlines advanced strategies experienced listed options traders use so those just starting can gain insight into how it is done.

Long straddle

The long straddle is an advanced strategy used when the trader expects a significant price movement but is still determining the direction of the move. The strategy involves simultaneously buying a “call” and “put” option at the same strike price and expiration date. Therefore, if the underlying asset moves significantly, either up or down, one side of the trade will make money while the other loses. It is important to note depending on how much premium was paid for each leg of this trade; there could be incurring losses even with a significant market move.

For this strategy to be profitable, it requires an increase in implied volatility due to uncertainty around the market and a significant price move.

Protective collar

The protective collar is another advanced options trading strategy experienced traders use to protect their long stock positions while also harnessing profit potential. It involves buying a “put” option with a lower strike price than the current position and selling a “call” option at a higher strike price than the current position. The put gives the trader downside protection if the underlying asset moves below its current value; meanwhile, any gains above its current value can be captured with the call.

The protective collar is used when traders don’t want to close their existing positions but still want to protect themselves in case of a market downturn. This strategy offers more protection than owning the underlying asset since it provides a buffer between the current value and potential losses.

Bull call spread

A bull call spread is another advanced options trading strategy experienced traders use when they expect an increase in the underlying asset’s price, but not a large one. This strategy involves buying a “call” option at a lower strike price and writing a “call” option at a higher strike price. The advantage of this strategy is that the trader can make a profit if the underlying asset increases in value, but their losses are limited to the premium they paid for both legs.

This strategy is ideal when traders don’t expect a significant move in the underlying asset’s price or want to take advantage of any increase without risking too much capital. Traders who want to use this strategy can speak to a broker like Saxo for help.

Bear put spread

The bear put spread is an advanced options trading strategy experienced traders use when they expect a decrease in the underlying asset’s price, but not a large one. It involves buying a “put” option at a higher strike price and writing a “put” option at a lower strike price. The advantage of this strategy is that the trader can make money if the underlying asset decreases in value, but their losses are limited to the premium they paid for both legs. As with any options trading strategy, it is essential to understand how much risk one is taking on before entering into such a trade.

Iron condor

The iron condor is a powerful advanced listed options trading strategy experienced traders use when they expect the underlying asset’s price to remain neutral or in a range. This strategy involves buying a “call” option at a higher strike price, writing a “call” option at an even higher strike price, buying a “put” option at an even lower strike price, and writing another “put” option at a lower strike price.

This strategy profits if the underlying asset stays within the two strikes of the options sold. The advantage is that it gives traders more excellent protection than just owning the underlying asset since it provides buffers on both sides of the current value. If done correctly, the iron condor can be a great way to make money without taking too much risk.