5 Strategies For Trading Stock Options For Beginning Investors

There are several strategic methods for beginning investors to trade stock options. There are dozens of strategies available that help new investors maximize their earnings and minimize their risk. With a number of simple options trading methods available, new investors can harness the flexibility, efficiency, and power that strategic investing offers. With the basic strategies understood, the options trading profit potential is endless for beginning investors. To learn more about the stock investment tips for new investors, read on to learn about the essential strategies for trading stock options for beginning investors.

A Long Shot

A long shot is a historically popular strategy when it comes to trading options. Long shot strategies are simple to configure, successfully plan, and launch, even for beginning investors. Once a call option is purchased, investors hold onto reliable securities for long periods. If you strongly believe an option will raise above its strike price before it expires. When the appropriate call is made, option values can continue rising infinitely. When properly deployed, a long shot strategy can earn you more in profits than earning a stock directly. A long shot strategy helps beginning investors increase their option values.

A Long Put

Amongst beginning investors, a long put is another essential, simple trading stock options strategy. The basic, simple to configure structure of the long put strategy makes it a favorite amongst new traders. Long put strategies are essentially the opposite of a long shot strategy. Simply, you make the assumption that an option will fall below the strike price by the time it expires. Purchase a put option instead, and wager on its decline throughout your ownership. A long put strategy helps beginning investors strategically trade stock options.

The Short Put

Many beginning investors additionally favor strategically trading stock options through the short put strategy. If you are just learning how digital options work, the  short put is an excellent beginning investment strategy. Using the short put strategy, investors sell put options prior to their expatriation, expecting the strike price to go up. When you believe a specific stock will go above its strike price prior to expiration, the short put strategy earns you income through pocketing the premium. At the same time, this strategy can be used to receive a more attractive price on the underlying stock. In the unfortunate case that a stock falls below the strike price, you can repurchase an option using the premium received. In most cases, the revenue received through options premium covers a significant portion of your net price paid.

The Long Straddle

The long straddle strategy is another favorited choice amongst beginning options stock traders. Call and put options are both purchased simultaneously from the same underlying asset. Both options purchased must have the same exact expiration date and strike price. Typically, this strategy is used when investors believe an option will move significantly outside of its current range. Through purchasing both a call and put option, investors do not have to wager on which direction stocks will move. Beginning investors are able to obtain unlimited gains through deploying this strategy. At the same time, your total risk is minimized to the combined cost of both option contracts.

Protection Strategies

Protection strategies help beginning investors reduce their portfolio risk across their accounts. In most cases, protective strategies are deployed in order to hedge risk, diversify your portfolio, and strengthen your current position. Protection strategies require you to purchase one call option every time you purchase one put option. This strategy capitalizes on the potential of owning a specific options, while simultaneously protecting risk associated with the downside of options ownership. When beginning investors launch a successful protection strategy, you limit your investment risk to the difference between the current price and strike price of a specific stock option.

There are several strategic practices for trading stock options that beginning investors can practice. There are several strategies to know before investing. One of the most popular, simple options is the long shot strategy. At the same time, new investors can trade using a long, or even a short put strategy. The long straddle helps new investors hedge their risk through call and put purchase of the same underlying security. Similarly, protective strategies balance portfolios by creating a mixture of call and put stock options. Consider the points mentioned above to learn about the essential strategies for trading stock options for beginning investors.

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