It is imperative to know and understand the different kinds of options strategies available for them to try out. Read on to find out what are forex options. As a diligent trader, one’s two-sided aim should be limit risk and maximize returns. In order to achieve this, they would need to know the multitude of ways in which traders would be able to take advantage of the flexibility that options offer. Below are the various types of calls which could be duly exploited by any trader to achieve the aforementioned two-fold aim:
Covered Call Option: Although most people would pursue a naked call option, it is also possible to pursue a buy-write strategy or a covered call. By pursuing the assets directly, one would be able to simultaneously write or sell call options on those particular assets. The volume of assets that you own, are roughly equivalent to the number of assets which are underlying the call option. Often, these positions would be used when the investors are holding a short-term position and a neutral opinion on assets.
Married Put: In this strategy, an investor that owns a particular asset (shares for example), would simultaneously purchase a put option for an equivalent number of shares. This strategy would be used by investors when they expect the price of the asset to go up, and really want to protect themselves against any losses in the short term. In other words, this functions in the same way as an insurance policy.
Bull Call Spread: In this spread strategy, an investor would buy off all the call options at a specific strike price rate and then sell off all the calls at a strike price which is higher than that. And both of these call options would have similar expiration months and assets underlying these options. This is a type of vertical spread strategy which would be used when an investor is completely bullish and is expecting a price rise in the underlying asset’s price.
Bear Put Spread: This, like the bull call spread described above, is a vertical spread. Here the investor buys off all the put options at a particular strike rate and then sell those same put at a strike rate which is lower than the price at which he made the purchase. This method is mostly used when the trader is bearish and is expecting a fall in prices.
Protective Collar: This is performed when a trader purchases an “out of the money” put option and at the same time writes an out of the money call option (both of these is done simultaneously). This strategy is used after a trader has had substantial gains from a long trade.
These, in short, are among the most practiced and vouched-for options in the world of trading.