This post is a reminder of some of the most effective option trading techniques that had worked best for me. If you are not doing these, then I suggest you read this post. Please note that these techniques work if you only use them correctly. So make the effort to learn and practice before you enter yourself into a position. A good rule of thumb is to not enter a position if you don’t know how to exit it.Â
The Techniques
1. The Box Technique - buying a combination of options on different strike prices. We are guaranteed the price of the box. Always be on the lookout for arbitrage opportunities to execute the box technique
2. Synthetic Position - With synthetic positions, we don’t care about future movements. We try to take advantage of mis priced option prices. What does it mean to have a synthetic position? read more about it.
3. Testing For a Trend - How can testing for a trend help you? if you know there is a strong possibility the market is going up, you can buy either your favorite bull spread or just a call option. If the market is static, you can also profit by selling out of the money options.
4. The Butterfly spread - one option each at the high and low strike price are bought, and two options at the middle strike price are sold. For put options, the trades are reversed. How can you make money out of it? The Butterfly spread guarantees a profit between the high and low. Moreover, if the total spread is of positive value (the two options sold worth more than the two options bought), we can guarantee a profit!
5. Delta Neutral - Usually done when wanting to replicate an option. Delta neutral assures us that our option’s portfolio will not be affected by any change in the stock, with hope that at the pay off, we would guarantee a profit.
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do you have any option trading systems that really works ? if yes, please care to share
Hey Hans,
Please see my posts on the techniques I use in trading options. About a system, I’ll have to write a series of posts about that soon.