Becoming a Listed Options Pro: Advanced Trading Strategies for the Brave

Listed options trading is a thrilling and complex realm that attracts traders hungry for high-risk, high-reward opportunities. As traders progress in their options trading journey, they may seek to venture into advanced strategies that require a deeper understanding of options pricing, volatility, and risk management.

This article will explore advanced trading strategies for the brave, providing seasoned traders with a roadmap to becoming listed options pros.

The long straddle

The long straddle is a Singapore options trading that involves simultaneously buying a call option and a put option on the same underlying asset with the same strike price and expiration date. This strategy is employed when traders anticipate a significant price movement in the underlying asset but are still determining the direction of the movement.

By purchasing both the call and put options, the trader aims to find opportunities from the increased options premiums resulting from the anticipated volatility. The profit potential is unlimited if the underlying asset experiences a substantial price movement in either direction.

However, it’s important to note that the long straddle strategy has a limited time frame for the price movement. If the underlying asset remains relatively stable, both options may expire worthless, resulting in a loss equal to the premiums paid.

Iron Butterfly

The iron butterfly strategy utilises both call spread and put spread. It consists of selling an out-of-the-money call spread and an out-of-the-money put spread, both with the same expiration date and equidistant strike prices from the underlying asset’s current price.

The objective of the iron butterfly strategy is to find opportunities from a relatively stable underlying asset where the price remains within a specific range. The premiums received from selling the spreads contribute to the potential return. Potential returns are achieved when the underlying asset closes at the call’s strike price and puts spreads at expiration.

The iron butterfly strategy carries the risk of limited profit potential and potential losses if the underlying asset moves significantly beyond the strike prices of the spreads. Traders must carefully select the strike prices and manage the position actively to minimise risk.

Ratio spreads

Ratio spreads are advanced options strategies that involve many long and short options contracts. They are employed when traders have a directional bias and expect a moderate price movement in the underlying asset.

There are two types of ratio spreads: the ratio call spread and the ratio put spread. The ratio call spread involves selling more call options than the number of call options bought, while the ratio put spread involves selling more put options than the number of put options bought.

The objective of ratio spreads is to take advantageof the imbalance in options premiums resulting from the differing number of long and short options contracts. The potential return is limited to the net premium received, but the risk is asymmetrical. The potential losses can be significant if the underlying asset moves in the anticipated direction.

Traders employing ratio spreads must have a strong understanding of options pricing, volatility, and risk management. Active monitoring and adjustments may be necessary to maintain the desired risk-reward profile.

Calendar spreads

Calendar spreads are a type of advanced options strategy, also called horizontal or time spreads. They involve purchasing and selling options with the same strike price but different expiration dates. Traders use this strategy when they predict low volatility for the underlying asset soon but expect more significant price fluctuations over a more extended period.

The calendar spread takes advantage of the different rates at which options with different expiration dates decay in value. By selling the short-term option with a closer expiration date and buying the longer-term option, traders can take advantageof the accelerated time decay of the short-term option while maintaining exposure to the long-term price movement.

In summary

Becoming a listed options pro requires knowledge, experience, and bravery. Advanced trading strategies, such as the long straddle, iron butterfly, and ratio spreads, offer seasoned traders opportunities to capitalise on volatility, range-bound markets, and directional biases. However, traders need to understand the risks involved and manage positions diligently.

As with any advanced trading strategy, practice, education, and continuous learning are essential. Seasoned traders should stay updated on market trends, refine their risk management skills, and adapt their strategies to changing market conditions.