For the coming year when is trading call options a good option? If the options trader believes that a stock will be going up he or she will believe that buying call options is a good choice. He or she will buy call options and profit when the stock goes up, buying at the contract’s strike price and selling at the higher spot or market price. 

When is trading put options a good option for the coming year? When the trader believes that a stock will go down in price he or she will buy put options on a stock and profit when the stock loses value. The options trader will buy the stock at the lower market price, the spot price, and sell at the strike price, the price specified in the options contact. 

If, however, the experts are right this next year’s market will be volatile and uneven. Predicting stock movements over the short term of a few months may be very difficult. That is where a long straddle strategy comes in. What is an options trading strategy? An options trading strategy is combining any of the four options trading possibilities to improve the chance of success or reduce the risk in options trading. 

A long straddle is buying both a call and a put on the same stock with the same expiration date. In a long straddle options strategy the worst a trader can do is lose the cost the premiums paid for the call and the if the stock does not change price. However, this options trading strategy has potentially unlimited potential if the stock price changes significantly. 

If the stock price goes up the trader exercises the call option, sells the stock at the spot price and buys at the strike price. The profit is the price of 100 shares per contract at the spot price minus the strike price, minus the cost of premiums on both put and call options. 

If the stock goes down in price the trader exercises the put option and sells the stock at the strike price and buys at the new, lower market price, the spot price. The profit will be the price of 100 shares per contract at the strike price minus the spot price minus the premium cost of both put and call options. A long straddle options trading strategy carries twice the overhead of just trading puts or calls on an equal number of options contracts. However, the trader is reducing the risk of missing out on an unexpected market move by covering both up and down options. The long straddle strategy does not cover the possibility of the price of a stock not changing. If a stock price does not change the long straddle strategy will no result in any profit. To gain on stocks no changing in value the trader can use a short straddle options strategy. However, unlike the long straddle strategy, which only risks the premium price an unsuccessful short straddle can result in huge losses.

A long call is purchasing a call option. Rather than buying the stock the trader purchases the right to buy the stock if he or she chooses. If the stock goes up in price the trader will buy the stock but at the price when the contract started, the strike price. If the stock goes up this long options trading strategy allows the buyer of the call option to buy the stock at the lower, strike, price and sell at the current market price, the spot price for a profit. The risk for this long options strategy is that if the stock does not go up in price the trader loses the premium and he or she paid to buy the option.

If a trader uses a long put as a long options strategy he or she purchases the option to sell stock at the strike price which he or she will only do if the price the stock goes down. In that case the trader will buy at the lower spot price and sell at the higher strike price making a profit.

In using a long straddle as a options trading strategy the trader buys both a call and a put on the same stock at the same price with the same expiration date. In this long options strategy the trader is hoping that the stock goes either up or down substantially. The risk in this long options strategy is that the stock price will not change and that the trader will loose the price of both the call and put option. If this long options strategy works the trader makes the difference between the strike price and the spot price minus the cost of two premiums.

A long strangle is very similar to a long straddle options trading strategy. The trader buys both a call and a put on the same stock with the same expiration date. However, the prices are not the same. Like the long straddle as a long options strategy the long strangle has the potential for substantial profit with the risk of losing money on the two premiums paid for the call and the put.

In the case of both the strangle and the long straddle the trader expects there to be a lot of volatility to the underlying stock but has no clear idea of which way the stock will go. Using either a long straddle or a long strangle as a long options strategy makes sure that the trader will not lose out on a profit from a large stock move, either up or down.