4 Basic Option Trading Strategies
TickerWatcher | Jan 27, 2010 | Comments 1
In Options 101 I covered option basics and its now time to review the 4 basic option trading strategies that form the underlying foundation for all advanced techniques. In future posts, I will cover each of these strategies in detail.
4 Basic Option Trading Strategies
1. Long Call (buy a call option) – Unlimited Reward & Limited Risk – Pay a premium to buy (debit)
2. Short Call (sell a call option) – Limited Reward & Unlimited Risk – Receive a premium to sell (credit)
3. Long Put (buy a put option) – Unlimited Reward & Limited Risk – Pay a premium to buy (debit)
4. Short Put (sell a put option) – Limited Reward & Unlimited Risk – Receive a premium to sell (credit)
4 Basic Strategies
Each of the 4 trading strategies listed above has its own risk and reward profile and you must find a balance between the two that suits you risk/reward appetite. Understanding these basic strategies will help you move onto more advanced techniques that professional traders use on a daily basis and be sure to ask questions if you do not understand anything.
If you are unfamiliar with the definition of a call or put option, please refer to the “What are Options” post to review the fundamentals.
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Filed Under: Learn to Trade • Trading Strategies
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