Part 2 Support and Resistance

Option Trading Strategies

This is the most exciting part. Strategies range from simple to complex.

Beginner Strategies

Covered Call: Hold stock + sell call → generates income.

Protective Put: Hold stock + buy put → insurance against fall.

Cash-Secured Put: Sell put with enough cash reserved to buy stock if assigned.

Intermediate Strategies

Vertical Spread: Buy one option, sell another at different strikes.

Straddle: Buy call + put at same strike → profit from volatility.

Strangle: Buy call + put at different strikes.

Advanced Strategies

Iron Condor: Combines spreads to profit in low-volatility markets.

Butterfly Spread: Profit from limited movement near strike.

Calendar Spread: Exploit time decay by buying long-term and selling short-term options.

Risk Management in Options Trading

Options can wipe out capital if not managed properly. Key practices include:

Position Sizing: Never risk more than a fixed % of capital.

Stop Loss & Exit Rules: Define risk before entering.

Diversification: Avoid concentrating all trades on one asset.

Understanding Margin: Selling options requires large margin because risks are unlimited.

Hedging: Use spreads to limit risk.