In options trading, you have to buy or sell the underlying asset based on your choice and market analysis. But often, the options are termed risky instruments because of their complicated nature.
You can simplify your options trading journey and you can minimize the risk and maximize the profit by using some of the winning option trading ideas. In this article, you’ll understand how you can build winning option trading ideas on the option trading analysis app.
Commonly Used Option Trading Ideas
There are different types of option trading strategies that you can take in bearish, bullish or neutral market outlook. These ideas are used in a way to buy calls and put options in combinations. Calls give the choice to buy the underlying asset whereas put provides the right to sell.
Here are the different option trading ideas that you can deploy in your option trading analysis app.
Bull Call Spread
In a bull call spread, you have to buy one ATM (at-the-money) call and sell one OTM (out-of-the-money) call option having the same underlying asset and expiry date.
When the price of the underlying asset rises, the profit is earned which is equal to the net strike price minus the net premium amount. When the price falls, you have to face the loss which is limited to the net premium paid.
Bull Put Spread
This is also a bullish option trading strategy and you have to buy 1 OTM put and 1 ITM (in-the-money) put having the same underlying asset and expiry date.
When the price of the asset rises, the profit potential is limited to the point of the net credit received. Also, the loss is limited when the price of the underlying asset falls.
Bear Call Spread
Next is the bearish option trading strategy which is a bear call spread. If you expect that the price of the underlying asset can fall moderately, then you can buy 1 OTM call and sell 1 ITM call. The bought call should have a higher strike price than the sold call.
A profit is limited to the net premium amount when the price of the asset falls. Also, the loss is stopped to a point of the net strike price minus the net premium when the price rises.
Long & Short Straddles
In the long straddle, you can buy ATM calls and puts that have the same underlying asset, strike price and expiry date. In this neutral strategy, profit is unlimited and loss is restricted.
In the short straddle, you have to sell ATM calls and puts where the profit is limited to the total premium amount.
Option trading ideas or strategies can help you limit the loss and maximize the profit in options trading. Some of the winning option trading ideas are bull call spread, bull put spread, bear call spread, long and short straddles.
If you are looking for an option trading analysis app that provides the feature of pre-built option strategies, then you can download the Dhan Options Trading App.