Option strategy is an essential part of the option trading. Any kind of investment needs proper planning and if the risk factor is high, the planning should be perfect. The option strategies are made to control the losses and to boost the amount of profit from the stock market trading. The experienced investors always depend on the stock trading option strategy.
The investor always consider the risk factor involved in the process of trading in options. At the same time one should always remember that the stock trading and the option trading are not the same things and the amount of risk involved in the process of option trading is much high. The price of the options are determined according to several underlying instruments.
There are several ways and combinations to use the option as a protective shield as well as a high yielding medium.
Some of the widely used option strategies are:
Protective put is a king of strategy where the investor buys several puts at a time. This is done at such times when there is any assumption about any kind of fall in the market. Sometimes there are steep falls in the market and these situations are very favorable for the rise of the put�s value. The value of the put rises till the price of the stock touches the strike line. On the other hand, when the share market goes high the protective puts becomes worthless.
Covered call is an another example of option strategy, which is also very popular among the investors. It is a particular way of selling a call for a definite stock which is in the possession of the investor. If nobody has used the call, the investor gets back the premium and the stock. But if the call is used, the investor receives the exercise price of the stock.
Collar is also an unique option and an united face of the protective put and the covered call. It protects both the upper and lower bounds and minimizes the risks. On the other hand, if the call and the put are sharing the same security, the straddle option is used. In straddle, both the call and the put should also share the same expiration and strike rate.