Basic Options Strategies

In This Lesson

Essential options strategies every trader should know.

Duration: 30 min

Overview

Essential options strategies every trader should know. This lesson will provide you with practical knowledge and actionable insights you can apply to your trading immediately.

By the end of this lesson, you'll have a clear understanding of the concepts and be able to apply them in real trading scenarios. Let's dive into the details.

Key Concepts

Long Call Strategy

Buying calls for bullish directional bets with limited risk and unlimited profit potential.

Long Put Strategy

Buying puts for bearish directional bets or portfolio protection.

Covered Call Strategy

Owning stock and selling calls against it to generate income.

Cash-Secured Put

Selling puts while holding cash to buy the stock if assigned.

Protective Put

Buying puts to protect existing stock positions from downside.

Practical Application

Now let's put this knowledge into practice. Follow these steps to apply what you've learned:

1. Choose high-probability directional trades with strong technical or fundamental support
2. Select options with 30-60 days to expiration for optimal time decay balance
3. Use position sizing: never risk more than 2-3% of account on single options trade
4. Set profit targets: take profits at 50-100% gain rather than holding to expiration
5. Plan exit strategy before entry: both profit target and stop loss level
6. Track all trades in journal to identify which strategies work best for you

Common Mistakes to Avoid

Starting with Complex Strategies

Jumping into spreads, straddles, and iron condors before mastering basic long calls and puts.

Ignoring Liquidity

Trading options with wide bid-ask spreads or low volume, making it difficult to enter and exit positions.

Wrong Strategy for Market Outlook

Using bullish strategies in bearish markets or neutral strategies in trending markets.

Key Takeaways

Simple strategies often outperform complex ones for most traders
Direction and timing matter more than strategy sophistication
Income strategies (covered calls, cash-secured puts) have higher win rates
Directional strategies (long calls/puts) have higher profit potential but lower win rates
Match strategy to your market outlook and risk tolerance

Your Next Steps

Ready to continue your learning journey? Here's what to do next:

• Review this lesson's key concepts
• Complete the practical exercises
• Take notes on what you've learned
• Practice with a demo account
• Move on to the next lesson when ready