Which option strategies can help in earning best returns ?
Options are contract in derivative which enable buyers of the contract to buy or sell securities at a chosen price. Although there are various ways in which option contract can be designed. Financial Advisory Services providers can also suggests you good option trading strategies. To hedge against future price risk option contract is a good choice.Often traders enters into option contract with vague knowledge of different option strategies available for them.However traders must explore the opportunities related to different strategies and how they use them effectively to gain benefit from it.
Some of the useful option trading strategies are discussed below :
1)Bull Call Spread:
In this strategy traders can buy call options at some specific strike price and will sell the exactly same number of calls with a strike price higher then this.It has to be assured that both call options must have same expiration months as well underlying asset and this buying and selling has to be performed simultaneously.
Usually a trader with bullish nature follows this type of vertical spread as he believe there can be rise in the price of underlying asset.
2)Bear Put Spread:
Like Bull Call Spread, Bear Put Spread is also a vertical spread. However nature of both the strategies are different . Here a trader will buy a put option at some specific strike price and sell the exactly same number of put options purchased with a lower strike price.Here also it has to be assure that underlying asset and expiration months of both the options are same.
Unlike Bull Call Spread here traders with bearish nature follows this strategy as he expect a downfall in price.
This strategy facilitates traders to maintain there unlimited gains and limited loss. Here a trader buy both call and put option which are having the same strike price and expiration month. Often traders are confused that in future price movement will be in which direction and they can choose this strategy to benefit themselves under such situation.
There is a situation when a trader believe that there will be price fluctuation in the underlying asset but he is not sure in which direction it will be.Here a trader has to buy call and put option with same expiration date and underlying asset but strike price of both will be different. Strike price of call option will be higher then put option . As strangles are purchased out of the money they are cheaper then straddles.
This strategy is a bit different with other above discussed strategies. Here a trader will combine both a bull spread strategy and bear spread strategy using three different strike prices.Traders must be sure in which direction price movement will take place then only he will be benefited using this strategy.
These are some of the option strategies which can help you in earning good returns and deal with future price fluctuations in a better way. Stock Futures Tips suggested by market experts after performing a good technical and fundamental analysis also enables traders in earning profitable returns.