Trading options as a strategic investment is incredibly important for the stock trader. Options trading provides strategies that will boost your profits, decrease your costs and broaden to your trading approach. Although many people are scared of using options, it is important to realise that they are no more or less dangerous than any other form of trading – it is the trader’s greed that is dangerous. Options are simply strategic tools that, used safely, can be incredibly beneficial to a portfolio. Another thing that many people don’t realise is that options are short term trading instruments, and therefore in some cases require less technical analysis than straight stock trading. It more important to have the right amount and type of technical analysis for any given strategy.

How you can use options as a strategic investment

1. Recoup some of the cost of your investment – if you own some stock, you can gradually recoup the cost of the stock by selling calls against the stock every month. This called the “covered call” strategy. Over a year, it is even possible to sell covered calls enough times that you can eventually pay off everything that you initially invested in the stock, freeing you up to buy more or to buy a different stock. Technical analysis is not very complex – you already have information for your stock, and you need to add couple of indicators
2. Get paid to buy stocks – if you have stock in mind that you would like to own, but don’t want to buy too high, the “selling naked puts” strategy is very useful. Every month, you sell puts against a stock, but at a lower strike price than the stock is currently trading. If the stock goes up in price, your put expires worthless, and you keep the money (and do it again next month); if the stock drops to your chosen price, then you can buy it and wait for the profit to roll in as the stock bounces back up. After you have bought the stock, you can then sell covered calls to even further reduce the price you paid for it..
3. Buy stocks for half price – buying DITM (Deep-in-the-Money) options for shorter term momentum trading is a great way of buying into a stock for half the price (or doubling the bang for your buck). If you see potential growth of a stock over the next two months, you can take advantage of the high Delta of the option and buy the rights to it at a greatly reduced premium.
4. Profit from volatile markets – don’t hide your head in a volatile market! Look at the opportunities presented. Selling credit spreads, buying straddles or strangles, dealing in iron condors or butterflies – these are all excellent strategies to profit from a volatile market, especially when you are not sure which way the chips will fall.
5. Selling the future – options deal with promises in the future. A great way to make a steady, compounding profit of about 10% per month is the credit spread strategy. Identify a trend, and sell spreads every month to build your portfolio.

Fire in a fireplace is useful and beneficial, but outside the fireplace, is dangerous and destructive. Options are the same – in the context of a solid trading plan, with the right amount and the right kind of technical analysis, they are incredibly useful tools to any serious investor. The range of option trading strategies presented by options allows a trader to take advantage of almost any market condition, and to turn a steady and reliable return on investment.

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