Part 1 Support and Resistance

Option Trading Strategies

Options are highly versatile, allowing traders to implement strategies for bullish, bearish, or neutral markets. Some key strategies include:

a) Basic Strategies

Long Call – Buy a call option expecting price rise.

Long Put – Buy a put option expecting price fall.

Covered Call – Own the underlying stock and sell a call for income.

Protective Put – Own the stock and buy a put for downside protection.

b) Intermediate Strategies

Straddle – Buy both call and put with the same strike to profit from volatility.

Strangle – Buy out-of-the-money call and put to capture larger moves.

Bull Call Spread – Buy a lower strike call and sell a higher strike call to reduce premium.

Bear Put Spread – Buy a higher strike put and sell a lower strike put to limit risk.

c) Advanced Strategies

Iron Condor – Sell an out-of-the-money call and put while buying further OTM options to limit loss; profits in low volatility.

Butterfly Spread – Use multiple calls/puts to profit from minimal movement.

Calendar Spread – Sell a near-term option and buy a long-term option to profit from time decay differences.

Risk and Reward in Options

Options provide leverage, meaning a small price movement can result in substantial gains or losses. Understanding risk is crucial:

For Buyers

Maximum loss is the premium paid.

Potential profit can be unlimited (for calls) or substantial (for puts).

For Sellers (Writers)

Maximum loss can be unlimited if uncovered (naked) calls.

Premium received is the maximum gain.

Key Risks

Time decay (Theta) erodes value.

Volatility risk (Vega) can reduce option price.

Liquidity risk if the option is thinly traded.