I am going to describe the potential risks and rewards associated with the four basic options strategies.
Options are one of the most versatile trading instruments ever invented. They provide a high-leverage approach to trading that can significantly limit the overall risk of a trade, especially when combined with stock or futures. As a result, understanding how to develop profitable strategies using options can be extremely rewarding. The key is to develop an appreciation about how these investment vehicles work, what risks are involved, and the vast reward potential that can be unleashed with well-conceived and time-tested trading strategies.
The four basic strategies that are fundamental to your options trading knowledge are:
- Long Call (buying a call)
- Short Call (writing a call)
- Long Put (buying a put)
- Short Put (writing a put)