Options trading is a powerful tool for investors and traders looking to capitalise on the Singapore markets. By leveraging the potential gains from stock movements, options enable traders to maximise their returns while minimising their risk exposure. With the right strategies, options traders can generate impressive profits from their investments in Singapore.
This article will be exploring some of the most effective options trading strategies in Singapore to help you get started with your trading journey.
Bull call spreads
A bull call spread is one of the more popular trading strategies and involves buying a call option at a lower strike price and selling another with a higher strike price at the same expiration date. This strategy allows traders to limit risk and capitalise on any upward movement in the underlying stock.
Another popular trading strategy is covered call writing, which involves buying several stocks and selling call options against them. The main goal of this type of strategy is to generate income while minimising risk. By selling calls with an exercise price higher than the current stock price, covered call traders can benefit from both the option premiums they receive and any potential appreciation in the underlying stock.
The long put option is a simple strategy involving purchasing contracts at a specified strike price and expiration date. This strategy allows traders to take advantage of downward stock movements while managing risk exposure. By purchasing put contracts, traders gain the right to sell the underlying stock at a predetermined price and can offset any potential losses in the event of a market decline.
The short put option is another helpful strategy for options traders looking to capitalise on downward stock movements. By selling put contracts, traders collect premiums for every contract sold and are obligated to buy the underlying stock if it drops below the strike price before expiry.
This strategy is best suited for investors convinced that a stock will not move lower than its current level. They can benefit from collecting premium income while managing their risk exposure.
The married put is a neutral strategy involving buying a stock while simultaneously purchasing protective put options to hedge against potential losses. This type of strategy allows traders to benefit from any appreciation in the stock while at the same time minimising their risk exposure. By selling puts with strike prices lower than the current market price, traders can also benefit from collecting premium income.
A straddle is an advanced options trading strategy that simultaneously buys both call and put contracts at a predetermined strike price and expiration date. This strategy allows traders to take advantage of upward or downward movements in stocks depending on how they structure their positions. With this strategy, traders can capitalise on any volatility in the underlying stock without picking a direction.
The butterfly spread is an advanced options trading strategy that involves buying calls and puts at three different strike prices. This strategy allows traders to benefit from either a strong move upwards or downwards in the underlying stock while limiting their risk exposure. By combining call and put positions with different strike prices, traders can generate profits regardless of which direction the stock moves.
The long strangle is another popular option trading strategy that involves buying both call and put options with different strikes but at the same expiration date. Like the straddle, this strategy allows traders to benefit from volatile market conditions while mitigating risk exposure. By purchasing calls and putting options out-of-the-money, traders can take advantage of any solid directional moves in either direction.
The short strangle strategy is the opposite of the long strangle and involves selling both call and put options with different strikes but at the same expiration date. This strategy is best used when a trader expects that the underlying stock will not move significantly during the life of the options contracts. By selling out-of-the-money call-and-put options, traders can collect premiums while limiting their risk exposure to significant price movements.
At the end of the day
These are some of the most popular options trading strategies employed by Singaporean traders today. Each strategy has unique advantages and disadvantages, so investors must understand the risks and rewards before incorporating them into their trading strategies. By understanding these strategies, traders can create portfolios tailored to their own needs and risk tolerance levels, allowing them to successfully navigate the markets.