With the ever-changing market conditions, many investors are looking for investment strategies that offer good returns with limited downside risk. Options trading is one such strategy that can be used to achieve this.
Options are a versatile tool that can be used depending on the trader’s style and strategy. However, for beginners, options can seem daunting and challenging to understand. This article will explore some beginner-friendly options strategies that are used in Singapore.
What is an option?
First, let’s take a look at what an option is. An option is a contract between two parties that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. They are often used to hedge against risk, allowing traders to limit their losses if the market moves against them.
There are several types of options available, but we recommend starting with calls and puts for beginners. A call option gives the buyer the right to buy an underlying asset at a specific price, while a put option gives the buyer the right to sell an underlying asset at a specific price.
Now that you have a basic understanding of what options are let’s look at some beginner-friendly options strategies that can be used in Singapore.
The protective put strategy
The protective put strategy is one of the most straightforward options strategies available. It involves buying a put option as protection against a potential decline in the underlying asset price. For example, if you think that the stock market is overvalued and may experience a correction shortly, you could buy a put option to protect your investments.
The covered call strategy
The covered call strategy is another simple options strategy used in Singapore. It involves writing a call option against an existing long position in the underlying asset. This strategy can generate income from the underlying asset, as the writer of the call option will receive a premium for selling the option.
The bull put spread.
It’s a bullish options strategy that can be used when you expect the underlying asset’s price to rise. It involves buying a put option and selling a higher strike put option with the same expiration date. This strategy is designed to generate a limited profit if the underlying asset’s price rises while limiting the amount of loss if the price falls.
The bear call spread
The bear call spread is a bearish options strategy that can be used when you expect the underlying asset’s price to fall. It requires buying a call option and selling a higher strike call option with the same expiration date. This strategy is designed to generate a limited profit if the underlying asset’s price falls while limiting the amount of loss if the price rises.
The iron condor
The iron condor is a neutral options strategy that can be used when you are not sure whether the underlying asset’s price will rise or fall. It requires buying a call option and selling a put option with the same expiration date. This strategy is designed to generate a profit if the underlying asset’s price remains relatively stable while still allowing for limited profits if the price moves in either direction.
The naked put
Another standard options strategy is known as selling a naked put. It involves selling a put option when you do not own the underlying asset. It can be a risky strategy but can also be profitable if done correctly.
In conclusion
These are just some beginner-friendly options strategies that are used in Singapore. If you’re new to options trading, we recommend starting with one of these strategies before moving on to more complex ones. With a bit of practice and a lot of patience, you’ll be able to master these strategies and use them to your advantage. Read this article for more information.
