Part 6 Learn Institutional Trading

Strategies, Risks, and Rewards in Option Trading

Option trading is not just about buying and selling — it’s about strategy. Traders can design positions that match their view of the market: bullish, bearish, or neutral. Some popular strategies include:

Covered Call: Selling call options on a stock already owned to earn premium income.

Protective Put: Buying puts to safeguard existing long positions against potential losses.

Straddle and Strangle: Using both call and put options to profit from large market movements regardless of direction.

Iron Condor: Combining multiple options to earn profit in a range-bound market.

Each strategy involves a balance between risk and reward. For example, buying options offers limited risk (the premium paid) but unlimited profit potential, while selling options can provide steady income but expose traders to significant losses if the market moves sharply.