Top Beginner-Friendly Options Trading Strategies You Should Try

30 January, 2025

Synopsis

• Options trading allows you to buy or sell the right to purchase or sell an underlying asset.
• Basic options trading strategies come with risk, profit potential and market sentiment suitability.
• The right strategy should align with your financial goals and risk tolerance.
  
  

While delving into the world of options trading, there are a multitude of strategies that you can explore. Generally, the best strategy for options trading is one that you understand. So, here’s a beginner’s guide to a select few basic option trading strategies that you can consider. 

Options Trading Strategies

Here are a few options trading strategies you may want to consider:

• Long Call

A Long call is an unlimited profit and fixed-risk strategy that involves buying a call option. It gives you the right to buy the underlying stock at the strike price. The buyer can purchase a long call if they believe the underlying asset’s price will increase by at least the cost of the premium on or before the expiration date. If the expiration price is higher than the strike price, the difference is your profit without taking on all of the risk that would result from owning the stock. Your maximum risk is limited to the premium you pay. In options trading strategies, long calls may be beneficial when the market sentiment is bullish. 

• Long Put

A Long put is an unlimited profit and fixed-risk strategy that involves buying a put option. It gives you the right, but not the obligation, to sell shares of the underlying asset at the strike price on or before expiration. It is purchased when the buyer believes the price of the underlying asset will decline by at least the cost of the premium on or before the expiration date.

In a LongPut strategy, the buyer profits when the expiration price is lower than the strike price because they have the right to sell the asset at a higher strike price, while the asset's market value has dropped. If the expiration price is higher, the option expires worthless, and the buyer loses the premium paid.

• Short Call

A short call is a fixed-profit and unlimited-risk strategy that involves selling a call option. You can make short calls when the market sentiment is ambiguously bullish or strongly bearish. Short calls are profitable if the underlying asset's price is below the strike price at expiration.

The shorting premium is your fixed return. If the option expires below the strike price, you don’t incur any loss. If the expiration price is above the strike price, the risk is limited to your stop loss. 

• Short Put

A Short Put is a fixed profit and limited but high risk strategy that involves selling a put option. You can short puts when a strongly bullish market is present and you predict an increase in the asset price. Your return is fixed at the premium. Short puts may be profitable if the price of the underlying asset is above the strike price at expiration. However, if it is below the strike, you may incur losses up to your stop loss.

• Long and Short Straddle 

A long straddle is a market-neutral strategy involving buying both a call option and a put option with the same strike price and expiration date. An investor will often use this option trading strategy when they believe the price of the underlying asset will move significantly out of a specific range, but they are unsure of which direction the move will take.

In a short straddle strategy, you sell both a call option and a put option with the same strike price and expiration date. It is also a neutral strategy, but with undefined risk and limited profit potential. The strategy looks to take advantage of a drop in volatility, and little or no movement from the underlying asset.

Invest in Options with an HDFC Securities Demat Account

Option strategies can be used to suit different market conditions and investor preferences. Investors should carefully analyse their financial goals, risk tolerance and market outlook before implementing any strategy. While looking to further your investment, incorporating an HDFC Securities Demat account into your trading repertoire can streamline the process and provide easier access to managing your investments. 

Open a Demat Account + Trading Account at once with HDFC Securities. Know more here.

*Disclaimer: Terms and conditions apply. This article is only for educational/ informational purpose. It does not make any recommendation to act or invest. Investments in securities market are subject to market risks, read all the related documents carefully before investing. or invest.