Six popular options trading methods in Singapore

Options trading is a type of securities trading that allows investors to buy and sell options, which are contracts that give the holder the right to buy or sell an underlying asset at a specified price on or before a specific date. Traders use options over other securities to hedge their portfolios, generate income, or speculate on the direction of the markets. Investors can use many different option trading strategies, though it would be best to do your research before deciding on one.

Covered call

A covered call is an options trading strategy in which the trader sells call options on the asset they own to generate income from the premium.

To implement a covered call, the trader would sell a call option on an asset they own, such as shares of stock. The trader would receive a premium from the sale, and if the underlying asset price doesn’t increase, they can keep the premium as profit. However, if the underlying asset price increases, the trader must sell the asset at the strike price, missing out on capital gains.

Long call

A long call is an options trading strategy where the trader buys call options hoping that the underlying asset will increase in value.

To implement a long call, the trader would buy a call option on an asset they believe will increase in value. If the underlying asset price increases, the trader can exercise their option and purchase the asset at the strike price, resulting in a profit. However, if the underlying asset price doesn’t increase, the trader would lose the premium they paid for the option.

Short call

A short call is an options trading strategy where the trader sells call options, betting that the underlying asset will decrease in value.

To implement a short call, the trader would sell a call option on an asset they believe will decrease in value. If the underlying asset price decreases, the option will expire worthlessly, and the trader will keep the premium as profit. However, if the underlying asset price increases, the trader would be forced to sell the asset at the strike price, resulting in a loss.

Long put

A long put is an options trading strategy where the trader buys put options, hoping that the underlying asset will decrease in value.

To implement a long put, the trader would buy a put option on an asset they believe will decrease in value. If the underlying asset price does decrease, the trader can exercise their option and sell the asset at the strike price, resulting in a profit. However, if the underlying asset price doesn’t decrease, the trader would lose the premium they paid for the option.

Short put

A short put is an options trading strategy where the trader sells put options, betting that the underlying asset will increase in value. The convenience of this strategy is that it has unlimited upside potential.

To implement a short put, the trader would sell a put option on an asset they believe will increase in value. If the underlying asset price does increase, the option will expire worthlessly, and the trader will keep the premium as profit. However, if the underlying asset price doesn’t increase, the trader would be forced to purchase the asset at the strike price, resulting in a loss.

Long straddle

A long straddle is an options trading strategy where the trader buys both a call option and a put option on the same underlying asset. The trader hopes the asset will make a significant move in either direction.

To implement a long straddle, the trader would buy a call option and a put option on the same underlying asset. If the underlying asset price increases, the trader can exercise their call option and sell the asset at the strike price, resulting in a profit. If the underlying asset price drops, the trader can exercise their put option and purchase the asset at the strike price, resulting in a profit. However, if the underlying asset price doesn’t make a significant enough move in either direction, the trader would lose the premium they paid for both options.

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