Best Option Strategies for Earnings as An Options Trader

Best Options Strategies for Earnings As An Options Trader

After some trades in the monetary markets, you speedily realize the need to know ahead of your possible profit or loss and manage your risks. Nevertheless, learning isn’t enough; you must act! Smartest traders use substitute trading strategies to adjust to market fluctuations. Interestingly, options trading is one of the most powerful tools.

Options enable potential profit during volatile periods, irrespective of the market’s direction. This is feasible as options are traded expecting a market rise or fall. So far, the prices of assets such as currencies, crypto, and deriv are being traded; there is a beneficial options strategy.

This article will explore the best options strategies for earnings as an options trader. With these different options trading strategies, you will develop the ability to see potential in any situation. Before diving into the best options strategies for earnings as an options trader, let’s briefly examine options trading and how it works.

What is Options Trading?

Essentially, an option contract reserves a specific price (called the strike price) until the end and then provides us the right to buy or sell the fundamental asset at a lower or higher price than the market price.

Expirations can vary from hours to a few years. Like purchasing and selling in CFD trading, we open a call option if we predict the price will increase or a put option if we expect the price to fall. Options come at the premium rate based on the present price volatility – higher volatility means a higher premium.

How Do Options Work in Trading?

Options traders predict the future direction of the overall security market. Rather than buying shares outrightly, options contracts can give you the right but not compulsion to perform a trade at a specific amount. Options trading is used to scale returns at the peril of scaling losses in return for paying an upfront premium for the contract.

5 Best Options Strategies for Earning as an Option Trader

There are many options trading strategies to make you rich. Below are the best options strategies for earnings as an options trader. While some are more intricate than others, some need higher capital or require more risk.

1.      Covered Calls

A Covered Call is a limited risk and profit strategy, which entails purchasing a spot security and selling a high-strike call. Options traders use a Covered Call strategy to hedge against long-position risks. With a Covered Call, a trader does two things: they purchase shares in security, then sell a call options contract to buy the shares for a higher price than usual.

As such, the trader keeps the profit (premium) for selling the call option regardless of what happens. This offsets any losses if the security price reduces. The short Call serves as a premium-paying take profit, and the expiry is often between 30 & 60 days, which provides the security enough time to depreciate after the rally. Your return is limited to the spread between the spot buy, option strike prices, and the short-call premium. If the end price is lower than the buy price, your spot trade will experience losses; hence, a stop loss is needed.

However, the Covered Call strategy’s shortcoming is that the trader may need to sell if the options contract owner takes action to purchase. The Covered Call puts a cap on incomes if the security increases and attains the strike price for the options contract purchaser.

2.      Protective Put

A Protective Put also called a Married Put, is a limited risk & limitless profit strategy, which entails purchasing a spot asset and a put option. It is a hedging strategy that intends to cover possible spot losses. A Protective Put is used to manage risk when an uptrend is vague.

The significant risk is the premium; if the end price is lower than the spot purchase, the long Put will cover the losses. The Protective Put is a strategy similar to a Covered Call but with a little distinction. With this strategy, you own security shares plus an option to sell them.

3.      Bear Put Spread

The Bear Put Spread is another vertical spread regarding the best options trading strategy. In this approach, the investor purchases Put Options at a particular strike price and sell the same amount at a lesser price. Both options are bought for the same fundamental asset with the same expiration date.

Bear Put spread strategy is used when the trader has a bearish feeling about the underlying asset and expects the asset’s price to reduce. It’s a bearish strategy whereby the asset price must decline for the process to be successfully executed.

Your upside and premium expenses are limited when using a Bear Put Spread. If Outright Puts are costly, selling Lower Strike Puts against them is one way to offset the high premium.

4.      Straddle Option

The straddle is another best options trading strategy for income when it comes to options trading. In this tactic also, you purchase a Call and a Put Option for a similar underlying asset and date of expiration. A straddle differs from a strangle because you buy the Call and put it at an equal strike price. With a straddle option strategy, you predict the asset to change but don’t know which direction it will go.

The risk with this strategy is the options contract premiums you pay. The underlying asset or security must be unpredictable enough to offset contract costs. Nevertheless, if the asset considerably exceeds the call strike price, there’s slight restraining viability. And if the asset drops, you can end up in the black.

5.      Protective Collar

A Protective Collar is when you possess an asset, sell a Covered Call, and purchase a Protective Put. A Protective Collar works perfectly with a neutral position that wishes to hedge against the asset from depreciating. This is one of the best options strategies for earnings as an options trader, as it comes at very minimal risk.

The premium you pay for buying the put option can be offset by selling the call option. A Protective Collar can earn an income by selling the call option slightly above what you paid for the put option. If the asset price remains neutral and the strike price on the Call does not meet, you earn a small profit irrespective of the asset movement.

Final Thoughts on Best Options Strategies

Investors with a limited risk appetite should stick to basic approaches, while sophisticated investors with enough risk tolerance can use more advanced strategies. As option strategies can be amended to suit one’s specific risk tolerance and income requirement, they provide several routes to profitability.

Although there isn’t a “one size fits all” strategy, the above strategies should offer a good starting point in developing your trading plan. Trading options involves unique risks, so ensure you fully understand them before using any strategy that has to do with options.

We believe the Best Option Strategies for Earnings as an Options Trader discussed in this article will aid your understanding of the concepts better.

Should you have further questions (s)? Let’s have it in the comment section.

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