How to Use Option Trading Strategies
Options trading is buying the ability or right to purchase or sell a stock at a certain price in the future. In reality, it gets more complicated but essentially that is the basic idea. It is an extremely risky financial vehicle but there are options trading strategies to minimize this risk.
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Instructions
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Analyze the current market conditions. You will utilize certain option strategies when the market is rising, falling or trading neutral. The more volatility in the market the greater the chance an option strategy will work.
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Decide the best option trading strategy for the given market condition. There are over seventy individual option-trading strategies but most work given a certain set of market conditions. For instance, in a rising market, you want to sell a put option or buy a call option. In a falling market, you want to buy a put option and sell a call option. These are the simplest option trading strategies. For more information, see the resources section.
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Research the stock option available for purchase. Not only do you need an options trading strategy, but also you must apply this strategy to a specific company's stock.
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Establish a purchase price for underlying option. Then wait for the market to price an option to your liking.
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Purchase the specific stock option on the company you chose. You can either set-up an account at an on-line options trading site or contact an options broker to place the trades for you.
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Wait for the underlying stock to reach target price and then execute the option to purchase or sell the stock at current market prices.
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Allow the option to expire if the underlying stock does not reach the desired price. All options have an expiration date and you must exercise the option by a certain date.
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Tips & Warnings
Due to the extreme risks of option trading, a person should never invest money they can't afford to lose.
