Options can be used in many ways to profit from a rise or fall in the underlying market.
The most basic strategies employ put and call options as a low capital means of garnering a profit on market movement.
Options can also be used as insurance policies in a wide variety of trading scenarios. You probably have insurance on your house or your car because it is the right and vise thing to do so.
Options provide a safety net for trades and investments. They also increase your leverage by enabling you to control the shares of a specific stock without tying up a large amount of capital in your trading account.
The amazing versatility that an option offers in today’s highly volatile markets is welcome relief from the uncertainties of traditional investing practices.
Options can be used to offer protection from a decline in the market price of a long underlying stock or an increase in the market price of a short underlying stock.
They can enable you to buy a stock at a lower price, sell a stock at a higher price, or create additional income against a long or short stock position.
You can also use option strategies to profit from a move in the price of the underlying asset regardless of market direction.
There are three general market directions:
Up, Down, and Sideways.
It is important to assess potential market movements when you are placing a trade. If the markets are going up, you can buy calls, sell puts or buy stocks.
Do you have any other available choices?
Yes, you can combine long and short options and underlying assets in a wide variety of strategies. These strategies limit your risk while taking advantage of market movement.