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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.
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