Strategies, you need to know for current Market

A lot of money can be made by simply riding a trend. Not only is going with the trend wise, but buying and holding a position for weeks is less stressful than day trading or swing trading.

New options traders are often surprised to learn that it is possible to make greater returns with less risk using combinational strategies such as vertical debit spreads, horizontal debit spreads, backspreads, and synthetics. These strategies use two or more different options on the same underlying to create unique risk/reward profiles that single option positions cannot provide. Again, spreads are slower acting than single option positions. You don’t have to watch them as closely. And a single counter trend day won’t be as likely to scare you into exiting your position prematurely.

A vertical spread is constructed by buying one option and selling another option of the same type (call or put) in the same expiration month. When the option bought is more expensive than the option sold, the spread is said to be a debit spread because its opening results in a net debit to your trading account.

A horizontal spread (also known as a calendar spread) is constructed by buying one option and selling another option of the same type (call or put) with the same strike price but in different expiration months. The spread is called horizontal because the options differ only by month, and in a matrix of options you usually picture the months running horizontally.

With the vertical debit spread, both the long and short legs have the same expiration date. However, it is important to understand that the horizontal spread does not realize its full potential until the expiration day of the short leg. So if the market makes its anticipated move quickly, some patience will be required as you wait for the spread to mature. Whenever this happens, you are likely to think to yourself, “I wish I had simply bought calls.” But remember, a simple call purchase is a fast-moving position, requiring careful attention, discipline and sometimes nerves of steel.

You should remind yourself of this and ask yourself if that is what you really want. Usually, vertical and horizontal debit spreads are the best strategies for trending markets. If your forecast is for a moderate move over the next several weeks, these strategies pay better and are less volatile than simple option purchases.

Happy Trading!!!

Cheers.