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Options trading has gained massive popularity these days and many people want to get into it. However, most investors, especially beginners don’t have access to big capital and usually indulge in small account options trading. Conventionally, options trading involves a larger portfolio position but trading options from smaller accounts can be exciting as well and can often bring in big gains if done in a proper manner. If you are looking for a community of options traders, joining a vetted Options Trading Discord chatroom could be a smart idea.
5 Best Options Trading Strategies For Small Accounts
5 Best Options Trading Strategies For Small Accounts
If you are a small account investor or beginner these are the 5 best options trading strategies for small accounts:
Earnings Iron Condor
In an Iron Condor options trading strategy, there are two puts, for example, one long and one short, two calls for example, one long and one short and four strike prices with all having similar expiration dates. The said strategy is a non-directional one in which the trader has to select a range for the trade. An increase in the range will lead to a reduction in the profits however, the chances of success of the trade, in that case, do increase. Moreover, the profits generated are maximum in case the underlying shares do not show much of a movement.
While it may seem confusing, you can see a record of trades from the Options Trading Club that used this strategy for smaller accounts ($500-$1000). You can see the latest trade results here. If you are interested in getting trade alerts for this strategy, you can apply to Options Trading Club here.
A Covered Call is a very popular options trading strategy that allows generating income while reducing some of the risks of being long on a stock at the same time. As per the covered call strategy the options trader shall purchase the underlying shares and then simultaneously write a call option on those shares. In short, they must be ready to sell their shares at the agreed strike price. Moreover, the buyer on the other hand will pay a premium on the option that will form a part of the income of the options seller.
This is called a “covered” strategy because the trader already owns the stock that will be sold when the buyer exercises the option. This strategy can be chosen when traders have a short-term position on a stock along with a neutral opinion on its direction. Besides, if anyone intends to generate income by selling call premium or simply wants to protect themselves against any potential decline in the value of an underlying stock, can opt for the Covered Call strategy.
In a Married Put Strategy, the options trader shall purchase a share and a Put option for such an equivalent number of shares simultaneously. More than profit-making, it can be termed as a capital preserving strategy where there is unlimited potential for profits while that of a loss is limited. This is because there is no ceiling on the appreciation of the price of the underlying asset and the floor under the asset limits the downside risks. Moreover, this strategy has other perks as well. Like, by owning a stock with a protective put option the trader also gets to experience the benefits of stock ownership like receiving dividends or having the right to vote.
This strategy is generally adopted when the options trader expects the price of a stock to rise but at the same time wants to hedge his position in case the price of the stock tumbles. The Long Put generally offsets the decline in the event of a fall in the price of the underlying asset.
In a Long Straddle approach, the options trader has to simultaneously purchase a call and a put option on the same underlying asset. The strike price and expiry date are the same for both options. Theoretically, this strategy can lead to unlimited gains while the maximum loss gets limited to the combined cost of both the options purchased.
Such a strategy is adopted when the trader believes there will be a significant movement in the price of the underlying asset beyond the specified range and are not sure of the direction in which the movement will take place. Further, by adopting this strategy, the trader’s main intention is to profit from a very strong move that has got triggered by some noteworthy market event.
Long Call Butterfly Spread
The Long Call Butterfly Spread is another neutral strategy involving lower volatility in the price of the underlying asset. It is a combination of a bull spread strategy and a bear spread strategy. The strategy involves three parts. Firstly, it starts with buying one call at a lower strike price and then is followed by selling two calls at a higher strike price. Finally, it ends with buying one call at an even higher strike price. Moreover, all the calls have the same expiration date and all the strike prices are equidistant.
Just like earnings iron condor, a trader will adopt the long butterfly call spread strategy when they believe there won’t be much of a movement in the price of the stock before expiration. Moreover, maximum gains are made when the stock position remains unchanged till the expiry and maximum losses occur when the stock settles at the lower strike price or even lower or at or above the higher strike price.
Options trading involves risk and the perfect trades require lots of experience. You should use the best options trading strategies for beginners at the start of your investing journey. The more trades one makes the closer they get to the expected value. A lot of options trading strategies involve greater risks and are often not suitable for the traders not having access to a huge capital base. So, if you are someone who is just starting out or simply can’t risk a lot of money, you can use any one or more of the above-mentioned options trading strategies for small accounts, to ace your trading game.