Is there a good options strategy risk has a fairly low risk? It doesn't matter if it's complicated, has several legs, and requires margin. If you have a background in math or eco or are comfortable with graphs, I suggest you graph the payoffs of each of these strategies. It will really help you understand it. If you need help with this, let me know and I can draw a couple out for you. Your question is rather vague but also complicated however I will try to answer it. First off, many investors buy options to hedge against a current position in a stock already own the stock. But you can also try to make money off of options rather than protecting yourself. Let's suppose you anticipate that a stock will increase in value options you want to capitalize on this. So, you made a lot more money with the same initial investment. The amount of money you put in is small i. You may look into covered calls. In short, selling the option instead of buying it One can do this on the "buying side" too, e. Options you sell the put, and it goes up, you make money. If XYZ goes down by expiration, you still made the money on the put, and now own the stock - the options you like, at a lower price. Now, you can immediately sell calls on XYZ. If it doesn't go up, you make money. If it does goes up, you get called out, and you make even more money probably selling the call a little above current price, or where it was "put" to you at. The greatest risk is very large declines, and so one needs to do some research on the company to see if they risk decent -- e. For larger declines, one has to strategies the call further out. Note there are now stocks that have weekly options as well as monthly options. You just have to calculate the rate of return you will get, realizing that underneath the first put, you need enough money available should the stock be "put" to you. An additional, associated strategy, is starting by selling the put at a higher than current market limit price. Then, over a couple days, generally lowering the limit, if it isn't reached in the stock's fluctuation. Same deal if the stock finally is "put" to you. Then you can start by selling the call at a risk limit price, gradually bringing options down if you aren't successful -- i. The more legs you add onto your trade, the more commissions you will pay entering and exiting the trade and the more opportunity for slippage. So lets head the other direction. In theory, a riskless position can be constructed from buying a stock, selling a call option, and buying a put option. This combination should earn the risk free rate. Selling the call option means you get money now but agree to let someone else have the stock at an agreed contract price if the price goes up. Buying the put option means you pay money now but can sell the stock to someone at a pre-agreed contract price if you want to do so, which would only be when the price declines below the contract price. The example has shares for compatibility with the options contracts which require share blocks. According to google finance, if we had sold a call today at the close we would receive the bid, which is And if we had bought a put today at the close we would pay the ask, which is Given that it is difficult to actually make these trades simultaneously, in practice, with the prices jumping all around, I would say if you really want a low risk option trade then a bank CD looks like the safer bet. This isn't to say you can't find another combination of stock and contract price that does better than a bank CD -- but I doubt it will strategies be better by very much and still difficult to monitor and align the trades in practice. There isn't really a generic options strategy that gives you higher returns with lower risk than an equivalent non-options strategy. There are lots of options strategies that give you about the same returns with the same risk, but most of the time they are a lot more work and less tax-efficient than the non-options strategy. When I say "generic" I mean there may be strategies that rely on special situations analysis of market inefficiencies or fundamentals on particular securities that you could take advantage of, but you'd have to be extremely expert and spend a lot of time. A "generic" strategy would be a thing like "write such-and-such sort of spreads" without reference to the particular security or situation. You can use covered calls to make income on your stocks, but you of course lose some of the stock upside. You can use protective puts to protect downside, but they cost so much money that on average you lose money or make strategies little. You can invest cash plus a call option, which is equivalent to stock plus a protective put, i. Options don't offer any free lunches not found elsewhere. Occasionally they are useful for tax reasons for example to avoid selling something but avoid risk or for technical reasons for example a stock isn't available to short, but you can do something with options. By coincidence, I entered this position today. Ignore the stock itself, I am not recommending a particular stock, just looking at a strategy. The risk is shifted a bit, but in return, I give up potential higher gains. In a flat market, this strategy can provide relatively high returns compared to holding only stocks. By posting your answer, you agree to the privacy policy and terms of service. By subscribing, you agree to the privacy policy and terms of service. Sign up or log in to customize your list. Stack Exchange Inbox Reputation and Badges. Questions Tags Users Badges Unanswered. Join them; it only takes a minute: Here's how it works: Anybody can ask a question Anybody can answer The strategies answers are voted up and rise to the top. Ellie Kesselman 2, 1 13 Benjamin 6 Check out this site: Let's compare two scenarios: Cart 3 6. In both cases the option cost is going to eat up your returns, on average. You can't just buy the upside on stocks without taking any downside, risk costs money to buy the upside and the money it costs on average is "a lot" enough to eat up your upside on average. My friend is highly successful with this strategy. Ray K 7 Can we make a simple, risk-free option trade, with as few legs as possible? The not really surprising answer is "yes", but there is no free lunch, as you will see. Let's test this out with a little example. To start our risk free trade, buy Google stock, GOOG, at the Oct 3 Close: Paul 2, 9 Paul, I like the way you explain the trade. However, I believe this is not as risk free as it seems. One possible outcome is that Google goes to up to a few days later, and your stocks get call. You still own the put option, which if it goes to it will cost you a lot to get out, and you will probably want to sell it back after. Havoc P 6, 16 Sign up or log in StackExchange. Sign up using Facebook. Sign up using Email and Password. Post as a guest Name. In it, you'll get: The week's top questions and answers Important community announcements Questions that need answers. Holding cash equal to the underlying's notional value, plus buying an at-the-money call option, is economically equivalent to buying a put to hedge a current position in a stock. Good luck share improve this answer. MathOverflow Mathematics Cross Validated stats Theoretical Computer Science Physics Chemistry Biology Computer Science Philosophy more 3. Meta Stack Exchange Stack Apps Area 51 Stack Overflow Talent.
Iron Condor Options Trading Strategy - Best Explanation
Iron Condor Options Trading Strategy - Best Explanation
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