4 Simple options trading strategies for beginners
No doubt options are very complicated financial instruments.
But it does not mean that understanding them is not possible for someone who does not have a finance background.
In this article, we will talk about 4 simple options trading strategies for beginners that will make your options trading easier and simpler at the same time.
But before we discuss options trading strategies one needs to know what exactly options are??
If you are not familiar with options or are still in doubt whether or not you should start trading in them we suggest you check out our Basics of Options Guide.
For those of you who are very much familiar with options let's get into it:
Strategy 1: Naked Call Buy
A naked call buy is when a trader buys a call option anticipating that the price of the stock is going to go up in the near future. If the stock moves up then the call premium will increase and the trader will make some profit.
For this strategy, the loss potential is limited to the premium paid and the profit potential is theoretically unlimited. The payoff chart for Naked Call Buy looks like this:
Strategy 2: Naked Put Buy
A naked put buy is similar to a naked call buy strategy the only difference is that here the trader is anticipating the price of the stock to go down. If the stock price goes down then the put premium increases and the trader makes some profits.
For this strategy, the loss potential is limited to the premium paid and the profit potential is theoretically unlimited. The payoff chart for Naked Put Buy looks similar to that of Naked Call Buy:
Strategy 3: Naked Call Sell
A trader enters into a naked call sell when he expects the stock price to go down. If he is right and the stock moves down then the call premium would decay and the trader will make profits.
Unlike naked call buy a naked call sell has limited profit potential and unlimited loss potential. The payoff chart for this strategy looks something like this:
Strategy 4: Naked Put Sell
A naked put sell is similar to a naked call sell the only difference being that here the trader anticipates the stock price to move up. If the price moves up then the put premium would decay and the trader makes profits.
Similar to naked call sell a naked put sell has limited profit potential and unlimited loss potential. The payoff chart looks similar to that of a naked call sell:
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