When it comes to buying options in Australia, a multitude of strategies can be employed to make profits. However, not all of these strategies are equally profitable.
In this article, we will look at the best profitable options strategy and explore why it is so successful. We will also look at tips for implementing this strategy in your trading approach. So read on to find out more.
What is options trading, and how does it work?
Before we get into the details of the best profitable options strategy, we must first understand what options trading is and how it works.
Options are a type of financial derivative which gives the holder the right but not the obligation to buy or sell an underlying asset at a predetermined price within a specified period.
Investors typically use options to hedge against other investments in their portfolio or speculate on the future direction of an underlying asset. When you trade options, you are essentially betting on whether the price of an underlying asset will rise or fall. If you think the price will rise, you will buy a call option, and if you think the price will fall, you will buy a put option.
The best profitable options strategy
Now that knowing how options work, let’s look at the best profitable options strategy. This strategy is known as the long call.
The long call is a bullish strategy, which means it is used when the trader expects the underlying asset price to rise. When implementing this strategy, the trader will buy a call option with a strike price lower than the underlying asset’s current market price. The trader then holds on to the option until expiration, at which point they will exercise their option and sell the underlying asset at the strike price for a profit.
There are several reasons why the long call is a successful options strategy. Firstly, it allows traders to benefit from both the underlying asset price rising and any increase in volatility. Secondly, it has limited downside risk, as the trader’s losses are capped at the premium paid for the option. Finally, it is a relatively straightforward strategy to implement and understand.
The benefits of options trading
Options trading offers many benefits that make it an attractive investment option for many investors.
Firstly, it allows traders to take advantage of leverage, meaning they can control a prominent position with relatively small capital. Additionally, options trading offers greater flexibility than other investment types, as traders can tailor their options positions to suit their own individual risk/reward profiles.
Another benefit of options trading is that it can be used with other investment strategies, such as buying and selling stocks, to create a more diversified and well-rounded investment portfolio.
Finally, options trading allows profit in both rising and falling markets. It is because when you trade options, you are essentially betting on the direction of the underlying asset price. So whether the market is going up or down, you can still make money if you have correctly predicted the price movement.
Tips for success
If you are thinking of implementing the long call strategy in your trading, there are a few things you should keep in mind to increase your chances of success.
Firstly, choosing an underlying asset you are confident will rise in price over the period you are holding the option is crucial. An excellent way to research this is to look at historical price data and identify trends.
You must select an option’s expiration date that gives the underlying asset enough time to move in the desired direction. If you choose an expiration date that is too soon, there is a risk the underlying asset will not have enough time to move into profit territory.
How to get started with options trading?
If you are interested in options trading, there are a few things you need to do to get started.
Firstly, you’ll need to find a broker that offers options trading. Not all brokers offer this service, so it is essential to research and make sure you choose a reputable broker that offers the products and services you are looking for.
Once you have found a broker, you need to open an account and fund it with the amount of money you want to trade. You can start placing orders to buy and sell options when your account is funded.
It is also a good idea to familiarize yourself with the different options before you start trading. There are two main options: call options and put options. Call options give you the right to buy the underlying asset at a specific price, while put options give you the right to sell the underlying asset at a specific price.
Finally, it’s a good idea to practice trading with a demo account before you start trading with real money. It will allow you to get comfortable with the process and hone your skills without risking any of your capital.