Losing money in option buying?
Try these option strategies instead
AN option buy strategy is one where you need to pay premium. When you buy an option, and sell against it in far OTM or ITM, or say, you buy a naked call, then it is called an option buy strategy.
If done properly (ie, hedged, and you’ve followed your trading plan for stats like risk-reward ratio), then options buying strategies can make you tons of profit.
An option buyer empties his wallet, an option seller empties his treasury.
Here are 3 option buying strategies you can try intead of buying or selling naked calls.
Call Ratio Back Spread
This involves buying 2 OTM calls and selling 1 ITM call.
If the market goes up, you get unlimited profits. If it goes down, you get limited profits even then. Only time you make losses is when the market stays within a certain range.
Broken Wing Call Butterfly
This one is also called a skip strike butterfly because of its structure. Basically, you buy 1 call at strike price A, sell 2 calls at strike price B, skip strike price C and buy 1 call at strike price D.
Ideally, you want the strike price to go upto B, or get very close to B. Your breakeven is at C plus the net premium from calls bought and sold. At strike price D, you’re making a loss.
Bull Call Spread
This involves buying 1 ATM call and selling 1 OTM call.
Here you make profits beyond the ATM strike + net premiums. Below this you end up booking a loss.
These were some strategies that are trusted by traders and analysts in options trading. You can use a strategy building tool to create the strategies yourself as indicated above. Or you can also select from a library of pre-made strategies such as these available on optionlogy.com.
