If you’re new to options trading, you’ll want to familiarize yourself with the most popular UK traders strategies. By learning about these strategies, you can better understand how the market works and begin to develop your trading plan. This article will provide an overview of 7 well-liked options trading strategies, and we’ll discuss what each strategy entails and provide tips on how to implement them in your trading plan. So, if you’re ready to learn about some of the most popular options trading strategies, read more.
Bull call spread
It is a strategy that involves buying a call at close to the current market price and selling another call with a higher strike price. This strategy aims to profit from a stock’s upward price movement, while limiting losses. To implement this strategy, you’ll need to purchase an at-the-money call option and sell an out-of-the-money call option. When the stock price rises, you’ll be able to exercise your at-the-money call option for a profit. And if the stock price doesn’t rise, you can still hold onto your out-of-the-money call option as it will still have some value. Should the price of the stock rise beyond a certain level, your gains will be capped.
Bear put spread
A bear put spread is the short version of the bull call spread. The strategy aims to profit from a stock’s downward price movement. To implement this strategy, you’ll need to purchase an at-the-money put option and sell an out-of-the-money put option. When the stock price falls, you’ll be able to exercise your at-the-money put option for a profit. And if the stock price doesn’t fall, you will still make some profit from exercising your out-of-the-money put. Should the stock price fall beyond a certain level, your gains will be capped.
Long call
A long call is a strategy that involves buying a call option. This strategy aims to profit from a stock’s upward price movement. To implement this strategy, you’ll need to purchase a call option with a strike price at or above the stock’s current price. When the stock price rises, you’ll be able to exercise your call option for a profit. If the stock price doesn’t rise above the strike price, it will expire worthless.
Long put
A long put is a strategy that involves buying a put option. This strategy aims to profit from a stock’s downward price movement. To implement this strategy, you’ll need to purchase a put option with a strike price at or below the stock’s current price. When the stock price falls, you’ll be able to exercise your put option for a profit. If the stock price doesn’t fall below the stock price, the put will expire worthless.
Short call
A short call is a strategy that involves selling (or ‘writing’) a call option. This strategy aims to profit from a stock’s lack of upward price movement. To implement this strategy, you’ll need to sell a call option, collecting a fixed premium from the buyer. When the stock price doesn’t rise, you’ll be able to keep the premium from the call option sale. And if the stock price rises, you may still profit if the rise is not significant enough to offset the premium you received. Should the stock price rise beyond the premium + strike price, you will lose money.
Short put
A short put is a strategy that involves selling (or ‘writing’) a put option. This strategy aims to profit from a stock’s lack of downward price movement. To implement this strategy, you’ll need to sell a put option, collecting a fixed premium. When the stock price doesn’t fall, you’ll be able to keep the premium from selling the put option. And if the stock price does fall, you may still profit if the fall is not large enough to offset your premium. When the stock price declines by more than the premium + strike price, you will lose money.
Straddle
A straddle is a strategy that involves buying both a call and a put with the same strike price and the same expiry date. The goal of this strategy is to profit from a move in either direction that is larger than the premium. To implement this strategy, you’ll need to purchase a call option and a put option with the same strike price. If the stock price rises, you can exercise your call option for a profit. If the stock price falls, you can exercise your put option for a profit. If the stock price moves less than the value of the premium in either direction, you will lose the premium – the price move. Finally, if the stock doesn’t move at all, you will lose the cost of the premium.
The trading strategies described here used stocks as the underlying; the exact same strategies can be used with options or forex as underlyings.
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