Next video:
Loading the player...

When you’re ready to move beyond the basics of investing, it’s time to learn your options. These six strategies can help you reduce risk and increase returns.

  1. In a bull call spread, an investor buys a call option and, on the same underlying asset, sells a call option for less at a higher strike price. Both options have the same expiration. An investor who thinks the underlying stock will see a moderate rise in value may benefit from a bull call spread. It reveals exactly what the maximum profits or losses will be and limits risk to the premium paid for the position.
  2. In a bear put spread, an investors buys put options at a specific strike price and, on the same underlying asset, sells the same number of put options at a lower strike price. Bearish traders use this option.
  3. With the butterfly spread, the investor uses both the bull spread and bear spread strategies.
  4. In an iron condor, an investor holds a long and short position in two different strategies.
  5. In the iron butterfly, the investor combines either a long or short straddle with the simultaneous purchase or sale of a strangle.
  6. With a protective collar, an investor buys an out-of-the-money put and sells an out-of-the-money call on the same asset. The investor believes the stock will rise and isn’t ready to sell it yet, but wants to hedge against a potential drop in value.
  1. No results found.
Related Articles
  1. Trading

    Understanding Bull Spread Option Strategies

    Bull spread option strategies, such as a bull call spread strategy, are hedging strategies for traders to take a bullish view while reducing risk.
  2. Trading

    How To Manage A Bull Call Spread

    A bull call spread, also called a vertical spread, involves buying a call option at a specific strike price and simultaneously selling another call option at a higher strike price.
  3. Trading

    Which Vertical Option Spread Should You Use?

    Knowing which option spread strategy to use in different market conditions can significantly improve your odds of success in options trading.
  4. Trading

    When Should I Sell A Put Option Vs A Call Option?

    Beginning traders often ask not when they should buy options, but rather, when they should sell them.
  5. Trading

    Bear Put Spreads: A Roaring Alternative To Short Selling

    This strategy allows you to stop chasing losses when you're feeling bearish.
  6. Trading

    4 Popular Options Strategies for 2016

    Learn how long straddles, long strangles and vertical debit spreads can help you profit from the volatility that stock analysts expect for 2016.
  7. Trading

    What Is A Bull Put Spread?

    Investopedia explains: A bull put spread is a variation of the popular put writing strategy, in which an options investor writes a put on a stock to collect premium income and perhaps buy the ...
  8. Trading

    Vertical Bull and Bear Credit Spreads

    This trading strategy is an excellent limited-risk strategy that can be used with equity as well as commodity and futures options.
  9. Trading

    Explaining Credit Spread

    A credit spread has two different meanings, one referring to bonds, the other to options.
Hot Definitions
  1. Payback Period

    The length of time required to recover the cost of an investment. The payback period of a given investment or project is ...
  2. Collateral Value

    The estimated fair market value of an asset that is being used as loan collateral. Collateral value is determined by appraisal ...
  3. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  4. Current Account

    The difference between a nation’s savings and its investment. The current account is defined as the sum of goods and services ...
  5. Liability

    Liabilities are defined as a company's legal debts or obligations that arise during the course of business operations.
  6. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
Trading Center