Future and Options trading is a highly profitable venture. However, you must understand certain strategies that may help you generate profit and mitigate risk. Newbie traders initially find F&O trading a little challenging due to its complex derivatives.
Hence, in this blog, we’ll unfold five simple yet effective strategies that can help you gain exposure to the market while effectively managing the risk. Let’s begin!
5 Best Options Strategies for a New F&O Trader
Here, we’ve mentioned the five most effective strategies for a newbie Future and Options trader that you can apply to the option trading platform to generate profits.
You can also use an option strategy builder to use all these strategies and gain profits.
1. Covered Call Strategy
One of the simple yet effective F&O strategies is the covered call strategy. It involves holding an underlying asset and selling the call option on that asset.
The aim of this strategy is to generate additional income from the premium received from selling the call option.
If the underlying asset’s price remains below the strike price at the time of expiration, you may keep the premium without any additional obligations.
This strategy may provide the best results in case you’re expecting a slight increase or stagnant stock price and want to generate a return from the position.
However, if the underlying asset’s price surges above the strike price, you may miss out on some potential upside. You will still receive the premium.
2. Protective Put (Married Put)
Protective Put is another F&O trading strategy ideal for new traders, as it allows them to learn about options without taking excessive risk.
This strategy involves buying a put option on a stock you already own. It typically acts like an insurance policy that may limit the potential losses in case the stock price falls and take benefits if the stock price rises.
It can be mainly used to protect against market volatility and unforeseen downturns. This basically acts as hedging.
When the stock price goes below the strike price, the put option gains value, enabling you to offset the losses in the stock.
In case the stock price rises, the put option expires, and you may continue to hold the appreciated stock.
3. Bull Call Spread
The bull call spread is a more advanced strategy that involves buying a call option at a lower strike price while simultaneously selling the call option at a higher strike price with the same expiration date.
It limits both potential risk and reward, making it an ideal strategy for new traders following a more conservative approach.
You may use this strategy if you’re expecting a moderate rise in underlying assets’ price because the net premium paid is lower than buying a call outright.
However, if the underlying asset’s price doesn’t rise enough, it may result in a net loss. In simple terms, this strategy is effective in a slightly bullish market but not a huge surge.
4. Iron Condor
The Iron Condor is an advanced options trading strategy for beginners. However, it can be used with some practice and provide amazing results.
This involves selling OTM (out-of-the-money) calls and puts while further buying OTM (out-of-the-money) calls and puts. It may create a defined range in which a trader can make a profit.
The main objective of this strategy is to gain profit from the premium received for selling the call option and reducing the risk by purchasing the put option.
You may receive maximum profit if the underlying asset’s price ranges between the strike price of short call and short put options. However, you may register losses when the price moves beyond the strike price of the long position.
5. Long Straddle
Last but not least, long straddles enable you to buy both calls and put options with the same strike price and expiry date.
You may ideally use this strategy when expecting a significant price movement in an underlying asset but you are not sure about the direction.
It is one of the most suitable cases when an underlying asset is anticipated to make sharp moves either up or down.
This strategy may help you make unlimited profit potential when the stock price moves significantly.
However, the maximum loss is limited to the premiums paid for both options that occur if the asset’s price remains close to the strike price until expiration.
Conclusion
In summary, these five strategies mentioned above may help you go through the complexities and challenges of F&O trading. We hope this blog helps you determine the five best F&O trading strategies to kickstart your trading career.
