Option trading is how investors can speculate on the future direction of the overall stock market or individual securities, like stocks or bonds. Option contracts give you the choice—but not the obligation—to buy or sell an underlying asset at a specified price by a specified date.
Option is among the most popular vehicles for traders, because their price can move fast, making (or losing) a lot of money quickly. Option trading strategies can range from quite simple to very complex, with a variety of payoffs and sometimes odd names. (Iron condor, anyone?)
Regardless of their complexity, all option strategies are based on the two basic types of option: the call and the put. Below are 3 popular strategies, a breakdown of their reward and risk and when a trader might leverage them for their next investment. While these strategies are fairly straightforward, they can make a trader a lot of money — but they aren’t risk-free.
Check out this article: Option Trading For Beginners – Best 3 Step option trading strategies.