what are the best stradegies for options
1. The Iron Condor
The basic idea is that you sell a high strike put and a high strike call.
Then you buy two lower strikes puts and calls. That way if the stock goes down, you get paid for the put and up goes your profit on the two calls. If it goes up, you lose some money on the put but make it back on the two calls so you are breakeven.
You can also do an iron butterfly which is like an iron condor but with lower strikes on both puts and calls. This allows for more upside.
2. Put spreads
A spread is where you buy one option and sell another option of the same type (put or call) with a different expiration date. For instance, I might sell a September $100 put and then buy a December $100 put to be in this "put spread".
If the stock stays above $100 then I keep my money from selling the September put but I also make money because of my December put so I have unlimited upside compared to just owning one September put. But if the stock falls below $100 then I am out of both puts so I lose twice as much as owning only one put (because both puts go down).
3. Selling covered calls against stocks you ownThis works particularly well when there is low interest rates so people want to own dividend paying stocks (so stocks with higher yields)
You hold onto a stock that has a high yield but also has upside potential
You sell a call against it with about 6-8 months until expiration
If someone buys that call from you , they are entitled to purchase your stock at the strike price anytime until expiration
So say Apple is at $150 and has an annual yield of 2% and you own 100 shares ,you might sell a June 150 call for 3 dollars per share
You now have 3 dollars in your pocket immediately but if Apple stays above $150, whoever owns that call will probably exercise their right to buy your shares at $150 no matter what they are worth on open market
So now instead of having 100 shares worth maybe 20,000 dollars ,you have 20,000 minus whatever those 100 shares are worth on open market minus 3 times whatever those 100 shares were worth when sold as part of this covered call transaction
So lets say they were worth 50% more than when sold as part of this transaction (lets say at this point in time they are worth 25,000)
Then instead of having 20000
50 = 19500 left after selling covered call ,you have 19500
3000 (original sale) + 25000 = 48500 left if they do not exercise their right to buy your stock at $150
Thats huge upside
Also, note that since these companies pay dividends every quarter, if you hold onto these stocks long enough ,the dividend payments will eventually exceed what was made by selling these calls initially
4. Put Spreads against individual stocks or indexes or ETFs
I described above what happens when buying a put spread against an index or individual stock or ETF. Lets look at some examples: Say SPY (which is S&P 500 ETF) is at 200 dollars per share and has an annual yield of 2%. One thing we can do is buy SPY puts expiring in 6 months with about 10% premium over spot price (.10 x 200 = 20). Lets say spot price right now is 200 but we pay 22 for these puts so our cost basis per share would be 198 ($22/20). We would do this because we think SPY will stay above 198 even though its currently around 200 due to its dividends plus overall market trends plus whatever else makes us