Risk-Free Trading Strategy: The Main Options Trading That Will Not Lose Money
In trading world "no loss" sounds a marketing gimmick. Nonetheless, key to minimizing losses and locking in winners is good risk management and smart options trading. Strategy Focus: Hedge, Diversification, Leverage - Options
Understanding Option Trading
Options are financial derivatives that give traders the right, but not the obligation, to buy (call) or sell (put) an asset at a set price. They can be great hedging and return enhancing tools. With selective combinations of the options taken, traders can achieve the least exposure to the risk while maximizing the profit potential.
The (11) Key Components: No Loss Option Trading Strategy
Hedging with Covered Calls
A covered call strategy is when an investor holds a long position in an asset and sells (writes) a call option on that same asset. This strategy adds another income stream from the premium of the sold option, increasing losses in the value of the stock.
Used to Get Rear-Ended: Protective Puts
A protective put strategy involves the purchase of put options on stocks already held by the trader. This means that when the price of the stock goes down, the put will increase in value offsetting the loss on the share itself.
The Iron Condor Strategy
This tactic consists of writing an OTM put and an OTM call, whilst purchasing a more OTM put and call. Concerns about low volatility are concerned with profitability if your stock price does fall within the low volatility range.
Straddles Or Strangles For Volatility Play
These are known as call-and-put options strategies. A straddle uses both options with the same strike price, whereas a strangle has different strike prices. These strategies make money from big price moves, either up or down.
Naked v/s Covered Call: Credit Spreads for Limited Risk
A credit spread is a combination of selling a more expensive option and purchasing a less expensive one. That translates into a much smaller, capped loss than would have otherwise been the case and a very slight risk, which is why this strategy is often best left in the hands of more cautious traders.
No Loss Option Trading Best Practices
- Diversification: Not putting too much eggs in one basket by going across sector and asset classes while investing.
- Risk Management: Establish stop-loss limits and employ defined-risk strategies to avoid substantial losses.
- Using technical and fundamentals to determine entry and exit.
- Ongoing Review: Maintain oversight of option positions, adjusting strategies as market dynamics evolve.
- Position Sizing: The trade sizes should not be a large percentage of the entire portfolio.
Conclusion
Of course, there will never be an absolutely no-risk trading strategy, but a properly constructed No Loss Option Trading Strategy can reduce risk while providing a winning trading edge. Incorporating these hedging methods, credit spreads, and volatility strategies creates a versatile palette for traders to paint their portfolios with, set for success regardless of market conditions. The secret lies in disciplined execution, implementation of constant learning and adjustment of strategy according to market conditions.