Best stock option trading strategies

In a long straddle, one of the positions is likely to decrease in value though, if there is little to no movement in the stock price compared to the strike price, it is possible both positions will decrease in value , but the hope is that the stock will move so much in one direction that the winning position will more than make up the difference.

A less expensive way to play extreme earnings volatility is the long strangle strategy. A long strangle is similar to a long straddle, except the puts and calls are purchased at different strike prices. Typically, traders will purchase both options out-of-the-money, buying calls with strike prices above the market price and puts with strike prices below market price.

The most you can lose is the cost of both the options. But like the long straddle, the hope is that large returns from either the calls or the puts will more than make up the difference. This article is provided for educational purposes only and is not considered to be a recommendation or endorsement of any trading strategy.

The author is not affiliated with Lightspeed Trading and the content and perspective is solely attributed to the author. Navigating Taxes as an Active Trader. Large Cap Momentum Trading. Open an Account Try a Demo. The put acts as an insurance policy and limit losses to a minimal but adjustable amount. The purchase of one call option, and the sale of another. Or the purchase of one put option, and the sale of another. Both options have the same expiration. Thus, the higher priced option is sold, and a less expensive, further out of the money option is bought.

This strategy has a market bias call spread is bearish and put spread is bullish with limited profits and limited losses. A position that consists of one call credit spread and one put credit spread.

Again, gains and losses are limited. Diagonal or double diagonal spread. These are spreads in which the options have different strike prices and different expiration dates.

The option bought expires later than the option sold 2. The option bought is further out of the money than the option sold. The likelihood of consistently making money when buying options is small, and I cannot recommend that strategy.