Question

Which courses of action are available to market participants in options trading?

Answer 1

The courses of action for option trading are:

1. Straddle - Here the trader buys both call and put options at the same underlying price, strike price and expiry date. This strategy is used when the market direction is predicted that it would go upside depending on the recent financials of the company.

2. Strangle - Here. the investor buys out of money call and put options at same underlying assets and expiry date. Here the trader looks that the stock should move more than the total premium paid.

3. Covered call - This is best strategy for long term investments as the prices would remain constant or rise. If they fall, the risk associated with them is the least. Here, the trader is bullish on the stock prices for his investments.