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.
Spreads
Article Index
Options Trading Strategies: What You Need to Know About LEAPS, Spreads and Straddles
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Markman on the Markets: Historic Bull Run in Bonds Points to Higher Prices for U.S. Stocks
A sluggish month in the stock market has equity investors worrying about what's next.
But those equity investors would feel so much better if they'd just spend a little time studying the credit markets. And with good reason: The bull market in credit that continues to rage in the face of this stock-market lethargy leads us to one simple conclusion.
Stock prices have to head higher.
Indeed, independent analyst Brian Reynolds tells us that if stocks were trading at the same level as credit, the Standard & Poor's 500 Index would already be at 1,350 - 22% above where it closed on Friday.
For those who argue that the market has already rallied a great deal, or too much, let me just note that the S&P 500 would have to rise by another 41% just to get back to the level of three years ago. The key thing that bulls have in their back pocket is that investors are still trying to get used to the idea that the sky hasn't fallen - and have not yet priced in the prospects for a 25% increase in S&P 500 profits that we are likely to see in 2010.
But those equity investors would feel so much better if they'd just spend a little time studying the credit markets. And with good reason: The bull market in credit that continues to rage in the face of this stock-market lethargy leads us to one simple conclusion.
Stock prices have to head higher.
Indeed, independent analyst Brian Reynolds tells us that if stocks were trading at the same level as credit, the Standard & Poor's 500 Index would already be at 1,350 - 22% above where it closed on Friday.
For those who argue that the market has already rallied a great deal, or too much, let me just note that the S&P 500 would have to rise by another 41% just to get back to the level of three years ago. The key thing that bulls have in their back pocket is that investors are still trying to get used to the idea that the sky hasn't fallen - and have not yet priced in the prospects for a 25% increase in S&P 500 profits that we are likely to see in 2010.