Top Options Strategies That Actually Work in Volatile Markets

 To protect against losses that result from a market downturn, consider using options. As a safety precaution, if they were going to insure their vehicles, traders should protect themselves with options; in the same way that an individual cannot drive without auto insurance, traders cannot invest without utilising options.

Here is a brief overview of what options are: Options are an "option" or "right" to buy or sell stock at a predetermined strike price before a specified expiration date. There are two different options for trading: call options (to buy) and put options (to sell). The buyer of an option pays a premium when purchasing the option, and this is the maximum amount that they can lose.

Core Strategies Every Trader Needs

Many of the most successful options traders rely on a small, select group of strategies that have proven to work over time. You do not need to learn all 50 different strategies available; instead, learn the basics and focus on mastering those.

If you already own stocks, selling Covered Calls may be the best place to begin as a new trader. You sell the right to someone else to purchase your shares at a price higher than what you currently own them for, while you keep the premium collected when you made the sale, regardless of what happens afterwards. If the stock remains flat or drops slightly on the day of the sale, then you will receive additional income. If the stock moves up significantly, you will have sold the stock at your price, therefore making a profit.

 

Ten Strategy Combinations for Today's Markets

Markets are not always predictable. There are periods of trend when the market moves in one direction. and periods of sideways price movement. A much more volatile market will have wild price fluctuations and moving average trendlines that provide the price level of the instrument(s) of trade during that period.

Iron condors are primarily considered bearish and work well in a stagnant sideways market, as you will be able to profit from a rapid increase or decrease in the price of the stock. Condition traders have been known to maintain a portfolio of an iron condor during low volatility.

The Power of Keeping It Simple

The reason behind these simple strategies is that they have fewer variables or factors that could lead to a mistake in placing your trade; as a result, a trader has more time to find new trade opportunities versus managing their trades. An additional benefit of using a simpler trading strategy is that their commission fees are lower due to the reduction in trading volume, and more importantly, a trader does not have to worry about every aspect of the trade as part of their decision-making process.

For example, I once met a trader who made $50,000 last year only by utilising a long call option on an established uptrend and cash-secured puts on the stock she wanted to acquire. She had no idea what a combination was or how to use it; she simply maintained a level of discipline when executing the components of a long call and cash-secured put strategy.

How Professionals Actually Trade Options

The risk/reward ratio of the trade is 1 to 4, and at first glance, it looks very poor (risk of $800 to make $200 profit); however, because the trader sees that the implied probability of making money is about 65%, the perception of the trade is much more positive for the trader, so he/she can justify taking the smaller profit while having a much larger chance of being successful.

After 3 weeks, the price of Tesla stock is priced at $248. The iron condor is priced for about $1.20 in credit, and the trader exited the trade early with approximately 60% of the maximum potential profit. Why did the trader exit the trade early? Because a trader has rules for managing risk to take profits from high-probability trades, and allows profits to run on trades that require direction.

Building a Repeatable Trading System

He places trades on the SPY (S&P 500 ETF) every Monday, following strict delta guidelines and with 45 days until expiration. Any trades that have not been closed after reaching either 50% profit or have 21 days remaining will not be closed until they reach either one of those criteria - there are no exceptions. 

This automated methodology has produced 18% average annual returns over the past five years, resulting in low maintenance requirements. Consistency will provide you with the same results.

Ready to put these strategies into action? Tradewill offers the tools and real-time data you need to execute options trades with confidence. Start trading smarter today at tradewill.com.

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