Basic Option Trading Strategies

Strategies you can use to make money...

Puts and Calls form the basic building blocks of all option trading strategies.

Every trade is built using only Call options, only Put options, or a combination of the two.

If you are excited or overwhelmed by the number of stock trading strategies available to learn, then you'll feel the same way about options trading.

There are a larger number of option strategies available to the options trader.

I'm not a fan of information overload so I'll only share a few of the basics with you.

One of the great benefits of stock options is their versatility. You can tailor a particular trading strategy to be conservative, aggressive, or somewhere in between.

Here are just a few of the benefits of using stock options in your overall investment plan:

  • You can benefit from a rise or fall in stock price without actually owning the stock.
  • You can position yourself for a big move in the stock price even if you don't know which way prices will go.
  • You can earn extra income off of your current stock holdings.
  • You can buy stocks at a lower price then what they're trading at.
  • You can protect yourself from losing money if your stock declines in price.

Basic Option Trading Strategies

The following option strategies are meant to be an overview, and to expose you to the extreme flexibility of options. Here is my word of caution, do not become overwhelmed with the number of option strategies that you will find on the web. Pick one or two strategies and learn all you can about them.

Find the strategy that you like best and stick with it. At least until you make large sums of money.

This lesson just goes over the basics. I've made most of my money just sticking with the basics. I trade a few advanced option strategies here and there, but the basics are my bread and butter.

There are four basic option positions: long Call options (buying Call options), short Call options (selling Call options), long Put options (buying Put options), and short Put options (selling Put options).

Option Trading Strategies to Protect Profits

Hedging (protecting)

Option Trading Strategies for
Down Trending Stocks

Bearish (down trending)

picture of bear market

**FYI** Dow trending stocks and down trending strategies are called bearish stocks and bearish strategies. Please keep this in mind. You will most likely hear someone say that stocks are bearish, or they are trading bearish strategies.

**Tip** If you get confused by the term or forget, just remember that a bear usually stands up on its hind legs and swipes "down" with its front claws. Hence, bear markets are when stocks go down in price. 

Option Trading Strategies for
Stocks that are Rising

Bullish (up trending)

picture of bull market

**FYI** Up trending or rising stocks are called bullish stocks. Hence, a bullish strategy is a strategy where you think stocks will rise in price.

**Tip** If you get confused by the term or forget, just remember that in a fight a bull will thrust his horns "up" to attack you.

Option Trading Strategies for
Stocks That Aren't Moving

**FYI** Stocks that aren't moving are called neutral, sideways trending, or channeling stocks. People generally refer to the strategies as neutral trading strategies.

Module 3: Basic Strategies

Module Lessons

  1. Option Trading Strategies
  2. A Married Put
  3. A Protective Put
  4. Buying Put Options
  5. Trading Put Options
  6. Buying Calls
  7. Call Option Trading
  8. Writing Options
  9. Covered Call Options
  10. Book: Learn Options Trading

You can proceed to Module 4 (Stock Charts) whenever you feel you are ready.

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