Why Strategies?

Chapter 1

Why Strategies?

Why Strategies?

Chapter 1

Why Strategies?

In the previous module, we mentioned about call option and put option, however, the tendency of option traders is to buy options, expiry after expiry, with the hope of doubling their money. But we all are aware that it’s not always sunshine, at times there is a dark cloud cover and at times it could be cold and stormy.

Just like the weather, stock markets/financial markets are in different market regimes at different points in time. In order to take advantage of various market regimes, like bull trend, bear trend, oscillating and volatile markets, the need is to combine one or more options may be of the same type or different types, using varied strike prices. This enables option traders to participate in different market trends/regimes/types, with either hedged or unhedged positions via deploying option trading strategies, with the intention to maximise profits and minimise risk. These option strategies are generally traded as a combination, meaning all legs are traded at the same time. They can be traded over time to best suit your view about the market regime.

It is important to understand the characteristics of these different market regimes, so as to take benefit of the finer points and find a best fit option trading strategy for a particular forecasted market regime for an option trader. This will help him in scalping the stock market for profits and minimising his losses.

Option trading strategies formulated by the option traders may involve buying or selling of options and in case of spreads, involve both (buying and selling) of the same option type. We shall study in detail about option trading strategies and how suitable tools in Quantsapp can act as trade enablers for formulating sound option strategies.


Why option strategies are made?

Option strategies which are combinations of puts and calls of different strike prices, enable option traders to take advantage of various market regimes and deploy the best possible strategy.

Which strategy is best for options trading?

As the weather changes, so do market regimes, hence one size fits all or one strategy for all market regimes is a mission impossible. Different option strategies are suited for different market regimes.

Why are trading strategies important?

Different market regimes like, bullish, bearish, oscillating or eitherways, entail the need of different trading approaches, hence the importance of option strategies.

What are the different types of option strategies?

Option strategies may be hedged or unhedged implying, the payoff entails limited losses (hedged) or unlimited losses (unhedged).

What does hedged vs unhedged mean?

Hedged option strategy means the losses in the strategy are limited, while in case of un-hedged option strategy results in unlimited losses.