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What are the options?
Options trading is the buying and selling of an option contract. They provide a way to trade market moves with less capital outlay but for investors to retain unlimited profit or loss potential. Options traders take on more risk than traditional buy-and-hold investment strategies while enjoying potentially more significant rewards( check this here).
Why should I learn about Options trading strategies that pro traders in Singapore love?
If you’ve wanted to get into investing and make your money work for you, then learning how to trade options can help you do just that. But before you dive headfirst into trading, there’s a lot to know, so it’s best done with some education first. There are many ways of trading stocks and trying different strategies; hence, there is no ‘best’ way of trading.
This article will give you insights about options trading strategies that pro traders in Singapore love to use when making their trades. For example, there are different types of stocks available for purchase that offer various levels of risk and reward.
What are the Top 3 Options Trading Strategies that Pro Traders in Singapore Love?
There are many different options trading strategies out there, but only a few have proven to be adequate time after time, quarter after quarter. These top 3 ways to trade options include: The Bull Call Spread, The Bear Put Spread and the Ratio Back spread. Here’s an easy guide on how these work.
The Bull Call Spread
A Bull Call Spread is a limited risk, unlimited profit technique. It means that you can make substantial profits if the stock goes above your option’s strike price by expiration date but only lose the premium you paid for your options if it doesn’t.
The Bear Put Spread
A Bear Put Spread is an unlimited risk, limited profit technique. You can make money if the stock goes down by your option’s strike price by expiration date but only lose the premium you paid for your options if it doesn’t go below this level.
The Ratio Back spread
This strategy lets you buy more options than usual and sell less than usual at a higher price, hence allowing you to collect more premium at a lower cost of execution (the net premium received is higher than the cost of options bought).
These are just some examples of strategies you can use to trade stocks. It’s also essential to know what time frames work best for stock options, how unexpected events affect stock prices and more basics before you attempt any trading.
How do I get started with Options trading?
Before getting started with your first trades, it’s good to have a solid grasp on these two concepts:
1) Understanding risk/reward ratios
2) Knowing which stocks will be the most volatile
Risk/Reward Ratios:
Before understanding which stocks will make up your portfolio, it helps to understand what kind of risks you’re taking by choosing one over another. To help you out, you can use this simple chart below.
The Risk/Reward Ratio Chart
Stocks with an R/R ratio of 10 or higher are the best to go for if you’re looking for quick profits. If they fall in price, you have to wait for them to recover before cashing out your profit. For stocks with an R/R ratio between 5-9, these are ideal ones to go for when you expect a stock’s price might be stagnant or increasing very slowly over time.
Just make sure that you don’t invest in something likely to decrease in value. Stocks with a lower R/R ratio should only be considered when it doesn’t have much fluctuation and will ultimately stay at a special price.
Knowing which stocks will be the most volatile
Though this is not always true, it’s a good idea to invest in stocks that are likely more volatile than usual. Why? Because these stocks can give you greater returns in much less time. To find out which ones will make for the best portfolio, you can check out stock screening tools or use an online broker.
