Options 101

Review basic strategies to put volatility to work for you

Options Basics
Trading stocks is reasonably easy, at least in theory. If you think a stock is going up, buy it. If you think it is going down, sell it; or sell it short if you are a real risk-taker.

Long Calls
As one top hedge fund manager said, "the only way most people really do well in the markets is to be long and leveraged". Buying calls is the best way to be "long and leveraged".

Covered Calls
Use covered calls to generate income in your account. It is highly conservative and therefore widely popular. In fact, many stock traders begin trading options this way.

Protective Puts
Have some insurance for your portfolio - or any stock position - by using put options. Buying puts is a limited risk way to protect your positions.

Short Puts
Many retail traders use this conservative strategy to generate income in their accounts. Short puts can be an excellent way to acquire stock or generate income in your account.

Vertical Spreads
Lower your exposure to high premiums and implied volatility while increasing your probability to profit by using vertical spreads.

Calendar Spreads
Long calendar spreads provide a limited-risk way to take advantage of time decay inherent in different expiration dates.

Butterflies and Condors
Butterflies and Condors involve buying two options, at a net debit, to establish a position which profits if the underlying stays within a given range. Learn how to take advantage of high implied volatility.

Straddles and Strangles
By using long "straddles" and "strangles", you'll have a strategy to profit from big moves in a stock - no matter what the direction.

Options Pricing
Various factors - including implied volatility and time decay - help influence an options price. Understand all the factors to reduce risk while increasing your probability to profit.

Option Greeks
The option "greeks" come from the pricing model that gives us implied volatility and quantifies factors such as directional shifts, volatility, time decay and changes in interest rates.

Volatility is the key factor both in option pricing and in the profitability of any options trade. Thus, it is crucial to understand volatility data to be a successful options trader.


LOGIN   Forgot password?