Information On Different Strategies Involved In Stock Option Trading

The stock market is a brilliant place to improve your earnings and to multiply your savings. There are a number of investments that you can make to help you earn a lot of money. Stock options or equity options are a type of investment that connects you directly to the asset or business. In big corporations, senior employees are given the choice to invest in the company itself. This investment is in the form of stock options.

Because these are like any other kind of investment there are a number of different strategies that can be implemented to get good profits. The risk spectrum for this kind of trading strategies is covered completely to appeal to the most conservative to the most daring. In the end what you need to decide is which kind of investor you want to be – one who wants to hedge the investments made or one who is ready to speculate and take high risks. But whichever type of investor you want to be, it all comes down to profits. That is the ultimate goal really. To make profits what you need to do is to monitor the ups and downs of the stock market and choose a strategy that is devised to match the condition of the market.

These strategies or tactics are categorized into 4 major groups that will work on different types of markets –

• Vertical Spread – in this tactic you buy and sell the stocks at various strike prices in various contract months. The trading is done such that the risk of one stock is offset in the other.
• Ratio Spread – in this tactic short and long securities are bought in imbalanced numbers. This inequality in the numbers helps to offset the risk.
• Delta Spread – in this approach the deltas of the options are taken into account. The delta of the stock bought is divided by the delta of the stock written and a neutral position is acquired.
• Credit Spread – in this approach the stock that is sold is in a position close to the market and the stock that is bought is in a position further away. In this approach both the positions are in the same direction.

There are also variants of some of these tactics, each breaking down to make it easier for you to make your desired profits. The plethora of strategies in this kind of trading makes the stock option trading the most sophisticated investment method.