Low Risk Option Trading Strategies

There are many Option Trading Strategies that can be traded with low risk when used properly. This web site is dedicated to teaching you how to successfully invest or trade options.

Option Trading Basics

Long Call – Buy Calls in a bullish market with at least 45 day until expiration.

Long Put – Buy Puts in a bearish market with at least 45 days until expiration.

Stock Option Collar – There are two types of Collars, Protective and Appreciating. Both are used for stocks that you own, or want to own, for the long term. This low risk option trading strategy is much safer than the traditional covered call strategy.

Bullish Option Trading Strategies

Bull Call Spread – A debit spread strategy where you buy a lower strike price Call and sell a higher strike price Call with 45 days or greater until same expiration date in moderately bullish markets that are trending up.

Bull Put Spread – A credit spread strategy where you buy an OTM (lower strike price) Put and sell an ATM (higher strike price) Put with 30 to 60 days until same expiration date in moderately bullish markets that are trending up.

Bull Call Diagonal Spread – A debit spread strategy where you buy a lower strike price Call with 60 days or greater to expiration and sell a higher strike price Call with at least 30 days until expiration and at most 30 days less until expiration than the purchased Call. This is a good trade to do with LEAPS in combination with short-term options.

Bearish OptionTrading Strategies

Bear Put Spread – A debit spread strategy where you buy a higher strike price Put and sell a lower strike price Put with 45 days or greater until same expiration date in moderately bearish markets that are trending down or reaching new lows.

Bear Call Spread – A credit spread strategy where you buy an OTM (higher strike price) Call and sell an ATM (lower strike price) Call with 30 to 60 days until same expiration date in moderately bearish markets that are trending down or reaching new lows..

Bear Put Diagonal Spread – A debit spread strategy where you buy a higher strike price Put with 60 days or greater to expiration and sell a lower strike price Put with at least 30 days until expiration and at most 30 days less until expiration than the purchased Put. This is a good trade to do with LEAPS in combination with short-term options.

Option Volatility Trading Strategies

Long Straddle – A delta neutral strategy best placed in a market with high historical volatility at a time when the implied volatility is low and where you anticipate a volatility increase. Purchase an equal numbers of ATM Puts and ATM.

Long Strangle - A delta neutral strategy best placed in a market with high historical volatility at a time when the implied volatility is low and where you anticipate a volatility increase. Purchase an equal numbers of OTM Puts and OTM Calls with 45 days or more until the same expiration date.

Calendar Spreads can be traded with either Calls or Puts depending on your intermediate term outlook for an underlying asset. In either case, you are looking for stable markets in a trading range. In this options trading strategy you buy one long term option with 90 days or greater until expiration and sell one short-term call with 45 days or less until expiration at same strike price. The objective of this trade is to capture time decay since the sold option will lose value faster than the purchased option.

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