Share Market

Options are one of the most commonly used derivative instruments which are speculative in nature. Options provide the holder of the instrument the right to buy or sell the underlying asset at a predetermined price.

While investing in options are no doubt speculative in nature, the instruments provide a route as a strategic investment tool which when used judiciously helps in boosting the profits, decreasing costs and giving a new dimension to the trading approach. The judicious use of options comes to play when greed comes to picture. If greed is controlled in the right direction, options can be great beneficial tools to be included in the portfolio.

In the following article we have discussed a few option trading strategies which will help investors to use to the tool in a beneficial way. The same are as under:

1. Covered Call: A covered call strategy is the one which involves selling the cost of stock against the stock every month. Over the year, it is enough possible to sell the covered calls enough number of times to pay off everything that one initially invested in buying the stock.

2. Selling naked puts: The strategy is used when a person desires to own the stock but observes the price of the stock to be too high. In this strategy, one sells put against the stock each month but at a lower strike price then the current market price. If the stock price increases, you do not exercise the option (option goes worthless) and you have the money; if the stock price drops to your desired price, you buy the stock and wait for the prices to bounce back.

3. Deep in the money options: The strategy involves buying the stock at half the price. Here the investor foresees short term profit in the trade say, a period of couple of months or so. The main thing to note here is that the price of the option moves in the same rate as the stock but half the price. One point to note is that one has to keep in mind the option trading strategies in mind in such strategies than other strategies.

4. Selling the future: Options deal with the promises in the future, and selling a call or a put takes advantage of this with the risk being offset by purchasing another option as a security or insurance. It is a great route to make steady way for compounding profit and is denoted as credit spread strategy.

As said, options provide a beneficiary tool for the portfolio. Various strategic tools adopted while playing with options allows a trader to take advantage of the tool in almost any market conditions, thus making the options a reliable investment tool.