There are many types of options trading strategies that can help you fulfill your trading strategy. Depending on your investment criteria, desired outcome, and market outlook, you can trade calls and puts in different ways to earn income or protect a portfolio position from loss.
I tend to look for those trades that have a high probability of success and take advantage of volatility reversion to the mean. Those are certainly my favorite strategies to trade, but that’s because I don’t like chasing profits. High probability of success positions with consistent small payoffs keep me engaged and motivated.
You may look to protect a portfolio position of stock you own by selling a call, known as a covered call write. You may have a bearish outlook with an expectation for limited upside gain. This can be taken advantaged of through the use of a bear call spread, a vertical spread that involves the buying and selling of calls with the same expiration but with different strike prices.
The resulting credit (the difference between the premium paid and received) provides you with a potential profit and limited risk on the upside.
Short puts, credit spreads (both bull and bear), iron condors (an options setup I normally recommend new traders starting out), and ratio spreads are my favorites and I actively look for conditions where I can deploy such strategies. At our Startup OptionAutomator our trading philosophy is to “Trade the Math”.
In other words, we mathematically evaluate the inputs or criteria that best match a specific options trading setup in order to find the best ranked trades for the particular strategy. This approach will help you determine the best matches against an options trading strategy, as you call it or “setup” as we call it.