There are hundreds of option strategies. And they can be vastly different in terms of tactics and desired outcomes.
But in fact, there are really only a few basic strategies, and everything else is built on these in some form. This range of possible strategic designs is what makes the options market so interesting, challenging, profitable... and also nice and risky.
Are you surprised by my characterization of risk as "nice?"
Well, "risk" and "opportunity" are really the same thing, and every option trader needs to accept this.
Because if you want to go fast and get some serious movement, well, you have to climb on board the rollercoaster first, even if it scares you a little bit.
In my last options trading strategies article I took the mystery out of long calls, long puts, covered calls, short puts and insurance puts.
But the truth is those are only five of the eight general strategies (and "families" of strategies) we use here At Money Map Press.
Today I'd like to tell you about the final three, explaining what you need to know about LEAPS, spreads, straddles.
Let's get started with LEAPS.
Understanding LEAPS Options
This strategy can be an attractive alternative to the otherwise very short lifespan of most options. And the potential for gains in either long or short LEAPS trades is substantial.
options trading example
Article Index
Options Trading Strategies: What You Need to Know About LEAPS, Spreads and Straddles
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Options Trading: The Most Important Piece of Advice for Beginners
Here it is. The most important piece of advice I have for anyone thinking about options trading.
Don't let the red tape hold you back.
A lot of experienced and sophisticated investors shy away from anything that involves paperwork.
They think they're not qualified or ready, or simply that it's not worth the trouble.
Don't be one of them.
Yes, you will have to fill out an options application with your broker, but it's easy.
In fact, you had to file a similar form just to open your trading account in the first place. Now, if you want to upgrade your account to be "options approved," it's just another small step away.
Admittedly, the application may look intimidating at first glance. It is full of disclosures, legal qualifications and the kind of small print that is worrisome.
Yet the purpose of the application is simple enough.
Your broker just wants you to state that you know enough about options to make your own trading decisions.
And not to worry... It's not a quiz.
The disclosures are designed to gauge your level of experience. But their real goal is to let the brokerage firm off the hook in case things go terribly wrong. Of course, that's not going to happen to you.
But if a broker lets anyone trade without at least appearing to check them out first, they could be liable for your losses. And no one wants that.
Because options are by definition speculative, the New York Stock Exchange (NYSE), Financial Industry Regulatory Authority (FINRA), and National Association of Securities Dealers (NASD) all have rules and policies about "suitability."
That's the real reason you have to go through this (very small) hoop.
So you'll fill out the application. They file it away into the "just in case" drawer and you're ready to trade.
What's on the Options Trading Application?
The options application will ask some questions you would expect: Name, address, employment and employer name, annual income and all sources of income. They also want to know your net worth and liquid net worth, marital status and number of dependents.
Then there are a few questions you might not expect.
Don't let the red tape hold you back.
A lot of experienced and sophisticated investors shy away from anything that involves paperwork.
They think they're not qualified or ready, or simply that it's not worth the trouble.
Don't be one of them.
Yes, you will have to fill out an options application with your broker, but it's easy.
In fact, you had to file a similar form just to open your trading account in the first place. Now, if you want to upgrade your account to be "options approved," it's just another small step away.
Admittedly, the application may look intimidating at first glance. It is full of disclosures, legal qualifications and the kind of small print that is worrisome.
Yet the purpose of the application is simple enough.
Your broker just wants you to state that you know enough about options to make your own trading decisions.
And not to worry... It's not a quiz.
The disclosures are designed to gauge your level of experience. But their real goal is to let the brokerage firm off the hook in case things go terribly wrong. Of course, that's not going to happen to you.
But if a broker lets anyone trade without at least appearing to check them out first, they could be liable for your losses. And no one wants that.
Because options are by definition speculative, the New York Stock Exchange (NYSE), Financial Industry Regulatory Authority (FINRA), and National Association of Securities Dealers (NASD) all have rules and policies about "suitability."
That's the real reason you have to go through this (very small) hoop.
So you'll fill out the application. They file it away into the "just in case" drawer and you're ready to trade.
What's on the Options Trading Application?
The options application will ask some questions you would expect: Name, address, employment and employer name, annual income and all sources of income. They also want to know your net worth and liquid net worth, marital status and number of dependents.
Then there are a few questions you might not expect.
To continue reading, please click here...
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