Option trading strategies, when used efficiently, can yield lucrative returns. However, the success of your trades heavily relies on the trading strategies that you choose, which should align with your risk appetite. If you’re new to options trading, there’s no need to worry.
You can quickly acquire the necessary skills and learn option trading by taking an online option trading course or an option strategies course that will help you polish your trading skills. To help you further, in this blog, we will discuss the top 5 safest strategies for option trading that you can implement to maximize your returns while minimizing your risks. So, continue reading to learn more!
1. Covered Call
The first strategy out of the top 5 safest strategies for option trading is the Covered call strategy. It is an incredibly popular options trading strategy that offers numerous benefits. This popular strategy involves holding onto a long position while simultaneously writing a call option.
With the covered call strategy, you can receive profit in the form of a premium for selling the option, even if the long position doesn’t generate the desired returns. However, the strategy only works if the underlying asset’s price doesn’t fall below the breakeven point.
To successfully implement this strategy, it’s crucial to have a deep understanding of its intricacies and potential risks. Enrolling in an option strategies course can be helpful here.
One of the main advantages of this strategy is that it reduces the risks associated with holding an underlying asset for a long period of time. However, you must be willing to make a trade-off by being okay with selling your contracts at a short strike price.
2. Long Strangles
If you’re looking for a low-risk strategy with high-profit potential, the Long Strangle strategy might be just what you need. With this strategy, you’ll purchase slightly out-of-the-money (OTM) Put and Call Options with the same underlying asset and expiry date.
When you anticipate high volatility in a particular security but are unsure which direction it will move, the Long Strangle strategy is an excellent choice. You’ll be able to limit your maximum loss to the net premium paid while potentially achieving unlimited profits if the underlying asset moves significantly in either direction.
Long Strangle strategy offers minimal risk potential and is considerably cheaper than most other option strategies.
3. Protective Collar
The protective collar strategy is a popular option strategy that offers short-term downside protection in the options market. By implementing this strategy, you’ll be able to protect yourself against losses while having the potential to make money when the market goes up.
To execute this strategy, you’ll need to simultaneously purchase the OTM put option and write the OTM call option with the same expiry date when you already own the underlying asset.
The protective collar strategy is most effective after your long position in an underlying asset has experienced significant gains. This allows you to obtain downside protection while locking in the potential sale price if the market breaks out. It’s important to note that this strategy comes with a trade-off. You may be obligated to sell your contract at a higher price, which could impact your profit potential.
The protective collar strategy offers a cost-effective way to hedge downside risk while capping your upside potential.
4. Iron Condor
If you’re looking for a neutral option strategy to benefit from time decay, the iron condor could be the perfect choice for you. This popular strategy is often used by veteran traders due to its high probability of earning a small net premium.
To execute the iron condor, you’ll need to hold both a bull put spread and a bear call spread. This strategy works best when underlying assets are experiencing low volatility, and involves selling one call spread and one put spread with the same expiration on the same underlying asset.
This strategy comes with a fixed risk, meaning you’ll know the maximum amount you could potentially lose before implementing the strategy. You can calculate the maximum loss by finding the difference between the long and short put strikes or long and short call strikes, and then subtracting the premium received from this difference. If you find it hard to understand, Upsurge.club’s option strategies course can be helpful.
By utilizing a bull put spread and bear call spread, you can take advantage of low-volatility underlying assets and potentially maximize your profits while minimizing your losses.
5. Bull Put Spread
If you’re anticipating a moderate increase in the price of an underlying asset, the bull put spread option strategy could be the right choice for you. This strategy involves using two puts to form a range consisting of a higher strike price and a lower strike price.
When you implement this strategy, you’ll receive a net credit (or maximum profit) equal to the difference between the premiums of both options. This means that you’ll earn a profit as long as the underlying asset price stays above the higher strike price.
With the bull put spread strategy, your maximum loss is capped and already known. Your loss will be equivalent to the difference between the strike prices and the net credit that you receive.
With a capped maximum loss and a potential net credit, this strategy can help you manage your risk and potentially earn a profit.
There are a plethora of option trading strategies available in the options trading market, and each of them comes with its own set of risks and benefits. This blog covered the top 5 safest strategies for option trading. To get an overview further on how to be safe while managing options, you can check out our blog on how to manage risks when trading options.
To learn more about options trading strategy, you can enroll in the option strategies course offered by Upsurge.club. It offers one of the best option trading courses which provides a reliable curriculum and insightful knowledge of these trading strategies.