Basic Options Strategies Every Trader Should Know may sound risky or complex for beginner investors. However, there are simple options strategies that can provide a new investor with a way to place directional bets with limited risk and hedge market risks. These include long calls, long puts, covered calls, protective puts, and credit spreads.
The simplest option strategy for beginners is buying “calls.” If an investor is bullish on the price of a stock and expects it to rise, they can buy call options to profit from this expectation. The losses on this trade are limited to the premium paid, so it is a relatively safe option for new traders.
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Another option strategy that limits downside risk is selling put options. If an investor is bearish on the price of a stock and wants to protect their current investment, they can sell put options to do so. The profits on this trade are limited to the strike price minus the premium paid, so it is a less risky option for new traders.
Covered calls and protective puts are two other options strategies that work symbiotically with existing stock positions to generate income and limit downside risk. These are popular options strategies for beginner investors who want to leverage their equity positions while limiting their risk exposure. There are many other advanced options strategies like straddles and iron condors that can provide a trader with a wide range of profit opportunities. However, it is important to stay away from naked options and complex strategies if you are a beginner investor, as they can be very risky.