Nathan Real - Options Trading Strategies: A Comprehensive Guide to Trading Strategies During Times of Global Economic Loss | The Top Tactics to Know for Beginner and Veteran Options Traders for Successful Gains

Options give the owner of the contract the right to buy or sell a portion of their underlying asset at a predetermined price on expiry or before expiry. The owner of the contract is never obligated to buy or sell, and the options can be bought in the same way that most other asset classes are. These options enhance a persons investment portfolio by adding income, leverage, and protection. Used as a form of recurring income, options can also be used as a hedge, or as a risk offset, against a declining stock market to limit losses. Most often options are used to speculate which direction an underlying assets value will move.

Stocks and bonds, however, are never risk-free, and investors need to know what the advantages and disadvantages are of trading. The nature of options trading is speculative, and, as such, there is absolutely no guarantee of the trader ever making gains. To understand these advantages, options need to be broken down into how options can be traded.

Options form part of derivatives. These derivatives provide financial security as the value is derived from an underlying group of assets, a singular asset. This asset value is called a benchmark. The value of the derivative depends on the price of this underlying asset. Common options as derivatives are puts, calls, forwards, swaps, futures, and mortgage-backed securities.

Because the price of a derivative is linked to the price of an underlying asset, it is known as derivative security. When purchasing an options contract, you are given the right to buy or sell a portion of the underlying asset at a predetermined price on or before a predetermined date. Call options allow the trader to buy stock and a put option allows the trader to sell their stock. There is, however, no obligation to either buy or sell. The best way to think of call options is a down-payment on something you intend to purchase in the future.

An example of a call option, a potential property investor who is made aware of new housing development in its early building phases. For the property investor to secure the right to purchase one, or more of these properties they will need to place a down-payment on the potential desired properties. This down-payment secures the possible purchase of the property but the investor is under no obligation to actually purchase the properties. The investor expresses his interest by paying a deposit of $100,000. Once the development is completed, and the investor approves of the finished product, they will pay the remaining balance on the value of the property at the time of the security deposit, and not at the current valued price. If, however, the investor is not happy with the finished product, they forfeit the deposit and cut their losses. Alternatively, the investor stalls on the deal, and the deposit contract expires. The investor is now obligated to pay the full market price for the properties and not the locked-in amount.

A put option should be equated with an insurance policy. Lets say that the same property investor purchases one of these properties to live in themselves. The investor will need to purchase homeowners insurance. This insurance is put into place to protect the asset from damage and prevent future financial loss as a result of this damage. A premium is paid annually to cover the cost of this insurance. This premium covers a specified amount that will protect against any unforeseen damage. In terms of traditional options, puts allow the investor to insure against a loss. Perhaps the trader may not be willing to lose more than 20% of their position in the market on a $2500 investment. The trader can purchase a put option with the right to sell at $2000 at any point during the contract period. If the market doesnt drop during that time, the only loss the trader feels is the premium spent to cover themselves.

Options can be divided into;

Buy calls

Sell calls

Buy puts

Sell puts