Commodity Trading School Options Strategies

Getting Started With Options Strategy 1: Long Call Option Buy A Call Use this strategy when you are very bullish the market. The more bullish you are the further out of the money (higher strike price) you can buy. No other position can give you as much leverage with unlimited profit potential and limited downside risk. Strategy 2: Short Call Option Sell A Call Use a Short Call Option strategy when you believe the market is NOT going up. The strength of your belief determines at what strike price you should sell. Strategy 3: Bear Put Spread Buy Put A, and Sell Put B (Lower Strike Price) Use the Bear Put Spread when you think the market will go down but are unsure of how low, or if you think the market will go down and the straight put option position is very expensive and you want to be able to get an option with a closer strike price. Strategy 4: Bull Call Spread Buy Call A, Sell Call B (Higher Strike Price) Use the Bull Call Spread if you think the market will go up, but are unsure of how high, or if you think the market will go up and the straight call option position is very expensive and you want to be able to get an option with a closer strike price. Strategy 5: Call Ratio Spread Buy 1 At The Money Call, Sell 2 Or More Out Of The Money Calls. Use the Call Ratio Spread when you expect the market to make a slight up move but there is potential for the market to make a significant down move. The objective is to put this trade on as a credit, a free trade or at least very cheap. Strategy 6: Call Ratio Back Spread Sell 1 At The Money Call, Buy 2 Or More Out Of The Money Calls Use the Call Ratio Back Spread when you expect the market to make a substantial up move after a period of stagnation; the objective is to put the trade on as a credit, a free trade or at least very cheap. Strategy 7: Long Iron Put Butterfly Buy 1 Put, Sell 2 Puts Further Out, Buy 1 Put Further Out You use the Long Iron Put Butterfly when you expect the market to be range-bound, or make a small down move, but not go beyond a specific point. Strategy 8: Long Straddle Buy An At-The-Money Put & Call (Same Strike Price) Use the Long Straddle when you think the market will move sharply up or down, but don’t know which direction to expect. This is a good strategy to use when the market has been flat or trading in a narrow range, and you expect a news event or weather pattern to change the conditions of the market. Strategy 9: Long Strangle Buy An Out-Of-The-Money Call, And Buy An Out-Of-The-Money Put Use a Long Strangle when the market is range bound, and you expect: 1. The market to break out of the range 2. To make a large move 3. And when you don’t have a clear idea of which side to expect the breakout. Strategy 10: Put Ratio Back Spread Sell 1 At-The-Money Put, And Buy 2 Or More Out-Of-The-Money Puts Use the Put Ratio Back Spread when you expect the market to make a substantial down move after a period of stagnation or expect a trend reversal. The objective is to put this trade on as a credit, a free trade or at least, very cheap. Strategy 11: Short Straddle Sell An At The Money Put And Call (Same Strike Price) Use a Short Straddle when you think the market will not move sharply in either direction. You are looking to profit from a flat market. Strategy 12: Short Strangle Sell An Out-Of-The-Money Call, And Sell An Out-Of-The-Money Put Use this strategy when the market is range bound and you expect it to stay in the range, and fail to make a large move prior to option expiration. Strategy 13: Long Put Option Buy A Put Use the Long Put Option strategy when you are very bearish the market. The more bearish you are the further out of the money (lower strike price) you should buy. No other position can give you as much leverage with unlimited profit potential and limited risk. Do you know which 30 minute period of the trading day is most likely to see an increase in prices? Did you know which month the NASDAQ typically under performs relative to the rest of the year? Join CTS To learn these and other trading facts that can help make you a successful trader.

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