Trading listed options
Options trading strategies
Once you’re comfortable with the core concepts of options trading, you can consider putting it all into practice.
The simplest options trading strategies are ‘single-leg’ strategies in which you buy or sell single contracts (puts or calls). ‘Multi-leg’ strategies, on the other hand, combine the buying and selling of multiple contracts in a way that enables you to customise your risk/reward profile – eg a ‘vertical spread’ can be used to hedge (ie reduce the risk of) a single-leg option trade.
Multi-leg strategies also let you take advantage of a wider range of market conditions and outcomes than more conventional ‘directional’ trading.
For example, a ‘long straddle’ strategy is typically employed when a trader expects there to be a significant move in the underlying share price but believes that it’s just as likely that the price will go down as up. This is done by simultaneously buying a long call and a long put with the same expirations and strike prices. In this case, it doesn’t matter whether the underlying price goes up or down. If it moves sufficiently far from the strike, the long straddle strategy will still lead to profit.
A 'short straddle’ involves the simultaneous sale of a call and a put, in the expectation that the underlying market will not move far from the strike.
Different options trading strategies provide different risk/reward profiles, and some can be very risky indeed. Before trading options, you should bear in mind that they are complex instruments that come with a high risk of losing money rapidly due to leverage. And, you could lose more than your original investment .
Learn more by watching these guides to some key options trading strategies:
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