Online Options Trading: A Powerful Strategy for Diversified Investment Portfolio

Online Options Trading: A Powerful Strategy for Diversified Investment Portfolio

Online options trading in commodity, forex and stocks has advantages like high yield with low margins, low commissions, and risk hedging. Online options trading can be considered as an excellent tool to earn high returns especially when the markets are passing through a phase of high volatility.

Online option trading can be done in a variety of ways by following dozens of commodity option strategies.

Basic Strategies for Online Option Trading

• Plain vanilla strategy is the alternate name for basic trades in online option trading.
• It involves buying call or put option (Long Call or Long Put) and selling call or put (Short Call or Short Put).
• When you trade long call or long put you can profit from the rise or fall in the price of the underlying assets.
• Long call or put can give you unlimited profit whereas the loss is limited to the amount of option premium paid by you.
• Shorting a call or put (call/put writing) is a highly risky trade that can lead to huge losses.
• Here the profit is limited whereas the loss is unlimited. Call/Put writing is a skill that can be acquired only after thorough understanding of the intricacies involved in options trading.
• It takes years to develop the guts and skills required for call/put writing.

Remember that call option premium goes up if the price of the underlying commodity rises and vice-versa. Put option premium rises if the value of underlying commodity falls. There are many factors like time to expiry and implied volatility that can affect the proportion in which the premium value and the price of the underlying asset change with respect to each other.

Advanced Strategies for Online Option Trading

• In basic option strategies you take the position in naked call or put i.e. without any accompanying trades.
• Whereas in advanced strategies you take two or more positions in different expiry contracts in conjunctions with long, put, cash market and futures market.
• These strategies are best suited for hedging purposes and also for bulk trades (buying couples of contracts at a time).
• Covered call, spreads, straddles, strangles, butterfly – these are jargons of highly complicated advanced option trading strategies.

Summing Up

Learning the tricks of online options trading is a piece of cake if you are good at Math and Statistics. Most of the advanced strategies rely on option Greeks or option pricing models based on various mathematical and statistical fundamentals.