Option is a legal agreement between the buyer and the seller to purchase or sell a security within a certain period at an agreed price. It is quite similar to insurance in that you pay a sum of money so that the insurance company protects your property. Whereas insurance policies can not be exchanged, the difference between these two options can be traded. There are two kinds of contracts with options; call options and put options. When we expect the security price to go up and buy put options, we buy call options when we expect the security price to go down. If we expect the security price to go down, we can also sell call options, and vice versa if we sell put options. Usually, the option is counted by contract, one contract equivalent to 100 unit options. 1 unit option protects 1 unit share. So, one contract protects 100 unit shares.
There are many option trading strategies, which most of the options investors and traders use in their daily trading. However, We will initiate the best 10 strategies as follow:
1. Naked call or put
Naked call and put meaning buy call and put option only at the strike price, which is close to the market security price. When the security price goes up, the profit is the subtracting of the security price to the strike price if you buy a call and the reverse if you buy puts.