In order to start working with options, it's important to familiarize yourself with specific concepts.
Let's look through the main options strategies and figure out why professional traders like this tool so much.
Buying a call is the main strategy in options trading. The main advantage is limited losses and unlimited profit. As can be seen on the graph above, losses are limited by the premium paid for the option. But the profit is unlimited and depends on the price increase of the underlying asset.
This strategy should be applied when you are confident in the bullish mood in the market and the growth in the price of the underlying asset. If the market is dominated by bears, then it is worth taking a closer look at the next strategy.
This strategy is the opposite of buying a call option and applies when bears prevail in the market. At first sight, it’s not entirely clear why this strategy is so good, but if you look at the whole picture, you can see how it can be extremely profitable.
Here the loss is also limited by the premium paid for the option, and the profit is unlimited.
The strategy is to sell Put and Call options with the same strike price and contract expiration date. As you can see, the profit on this strategy is limited, but the loss, on the other hand, is unlimited. It is worth using this strategy when you expect a drop in market volatility.
Just like buying a straddle this is an important strategy
This is a combined strategy and consists of two simpler ones: Long Call A and Long Put A.
The strategy is to buy Put and Call options with the same strike price and contract expiration date. Profit is not limited and arises when the underlying asset moves in any direction.
The best friend of this strategy is high volatility. Losses are limited to premiums paid for two option contracts.
Let's assume - you are a bitcoin miner who must pay for electricity and other operating expenses at the end of each month. You forecast that you will mine 100 bitcoins in the next month.
You make the deal mentioned below to receive income in fiat to pay bills at the end of the month.
You are a BTC provider, so your income immediately after selling 100 call options is $50,000. You can use this amount to pay for operating costs, such as paying for electricity, repairing broken equipment, or deferring it to your amortization fund.
The price of bitcoin is growing: if the BTC price consolidates above $6,000 by the end of the month, you will provide 100 BTC and get $600,000.
Bitcoin price drops: if BTC drops below $6,000 in the following month, you will not provide anything and you will not receive anything. However, you have $50,000, which will be enough to pay all of your costs.