The 10 option strategies most beginners learn first are the covered call, bull call spread, protective put, bear put spread, strip, iron condor, straddles, strangles, momentum trading, and scalping. Each one below lists the legs you trade, the market view it fits, and where the risk sits. Defined-risk strategies (spreads, protective puts, covered calls) are the usual starting point; short straddles and short strangles carry large or unlimited loss potential. This is educational content, not investment advice.
Here are the 10 options trading strategies for new learners:
1. Covered call/ Naked Call Option Strategy
A covered call means owning 100 shares of a stock and selling one call option against them to collect premium. The Covered call (or buy-write) generates income and caps upside at the strike price. A naked call is selling a call without owning the shares; its loss is unlimited if the stock rises, so it is not a beginner strategy. Buying a call outright is a long call, a separate strategy.
2. Bull- Call Spread Option Strategy
Bull-Call Spread is a trading strategy where you buy an ATM call option and sell an Out-Of-The-Money call option on the same asset with the same expiration date. It is profitable when the asset’s price goes up but there may be losses if the stock price falls.
3. Protective Put Option Strategy
In a**Protective Put**, an investor buys an asset, such as shares of stock, and buys put options for an equal number of shares. A put option gives the holder the right to sell the stock at a specific price, known as the strike price. Each contract represents 100 shares. This approach can protect the investor against potential losses when holding the stock and It works similarly to an insurance policy, creating a price floor in case the stock’s value drops significantly.
4. Bear Put Spread
A Bear Put Spread is a debit spread for traders expecting a moderate fall in the underlying price. You buy a put at a higher strike and sell a put at a lower strike with the same expiration. The maximum loss is the net debit paid, and the maximum profit is the difference between the strikes minus that debit.
5. Strip Option Strategy
TheStripStrategy is used when investors anticipate high volatility but are bearish on market direction. It involves buying 2 lot ofATMPut Options and 1 lot of ATM Call Options on same underlying with same expiration. This strategy, a bearish take on the Long Straddle, can lead to significant gains if the underlying asset moves sharply, especially downward, by expiration.
6. Iron Condor Option Strategy
The**Iron Condor**strategy involves selling an (OTM) put, buying a lower-strike OTM put, selling an OTM call, and buying a higher-strike OTM call. This low-volatility strategy aims to earn a net premium with a high probability of modest gain. The maximum profit is when the stock stays within a specific range. The loss can be much higher if the stock price moves significantly beyond either strike.
7. Long Straddle and Short Straddle
Long Straddle is a market-neutral option strategy that is ideal when traders anticipate high volatility but are unsure of the market direction. It involves buying both a call and a put option on the same underlying expiration date and strike price. This strategy profits from significant price movements in either direction, making it a flexible approach for unpredictable markets.
The **Short Straddle**is used in low-volatility market conditions and entails selling a call and a put option on the same asset with identical expiration dates and strike prices. This strategy aims to profit from the premium received for selling the options, betting that the market will remain stable or exhibit minimal volatility. However, it carries a higher risk if the market makes a significant move.
8. Long Strangle and Short Strangle
The**Long Strangle**options strategy involves buying (OTM) calls and put options on the same underlying asset with the same expiration date. It is a trading strategy for high-volatility situations where the trader is uncertain of the price movement direction. It offers unlimited profit potential if the asset makes a substantial move in either direction, with a risk limited to the total premium paid for both options.
The**Short Strangle**strategy entails selling one OTM call option and one OTM put option on the same underlying asset, aiming to profit from the premium from selling these options. This strategy bets on the market price staying within a certain range, resulting in low volatility. The maximum profit is limited to the premiums received, while the potential loss is unlimited, making it riskier than the Long Strangle, as significant market movements can lead to substantial losses.
9. Momentum Option Strategy
TheMomentumIntraday capitalizes on market momentum by selecting stocks poised for significant movement due to trends, news, takeovers, or earnings announcements. Traders quickly buy or sell these securities based on their analysis of imminent changes. This approach requires rapid decision-making and is used mainly for intraday trading.
10. Scalping Option Strategy
TheScalping trading strategy focuses on earning profits from minor price movements, making it a popular approach among intraday traders, especially those involved in high-frequency trading. This strategy prioritizes price action over comprehensive fundamental or technical analysis. Traders should select stocks that are both liquid and volatile to facilitate quick entry and exit. Importantly, setting a stop loss for all orders is crucial to manage risks effectively.
MarketXLS is an Excel add-in with option strategy templates that calculate payoff, maximum gain, and maximum loss for each strategy above using option prices pulled into Excel. The covered call, bull call spread, iron condor, straddle, and strangle templates are linked in each section, and the templates library includes a reverse iron condor. MarketXLS also helps with risk management through its Excel functions.
Summary
Options strategies cover bullish, bearish, neutral, and high-volatility market views. Learning them takes time because the payoffs are nonlinear. Options strategies let you define entry prices and, with spreads and protective puts, cap your maximum loss in advance. Option strategies like covered calls, married puts, straddles, and strangles can help manage risk and take advantage of market changes. Options strategies can be used with various investments, such as stocks and commodities.
Learn More About:
1.** NSE Live Option Chain:NSE option chain data in Excel 2. Real-time Stock Prices:** See the guide to getting Indian stock prices in Excel.
