Top 5 Strategies the Options Traders Use to Mitigate Risk
While rise and fall are the basic aspects of the investment market, the options trader must be aware of the unique approaches to handling all its phases. Doing so will help him or her limit losses and maximize gains on the Algo Trading Software

Though options trading may sound complicated, you can resort to certain strategies that ensure increased returns and minimize risk. Using these strategies, the investors can also bet on the market's movement while hedging their position. The traders adopt different rules to make the most of the current market.

Out of the various techniques the traders employ to turn the odds in their favor when the market is going against them, here we explain some of their most potent strategies. These strategies help them in both scenarios - when the market favors them and otherwise.

These techniques help the traders record gains, irrespective of the market condition. Here are some market-neutral strategies, their benefits, and their limitations.

Top Five Strategies for Options Traders

Here are basic market-neutral options trading strategies:

1: Strangle Strategy

Strangle Strategy

This strategy needs the trader to manage calls and puts at different strike prices. A strangle is a great options trading strategy when the underlying security is exposed to price movement. In this strategy, the pattern day trader bets for a large price movement upwards or downwards. Some people confuse strangle with straddle. While a strangle strategy involves two strike prices, a straddle options trading strategy deals with both call and put options with similar strike prices and expiration dates.

There are two types of strangle strategy. One is the long strangle, and the other is the short strangle. The traders purchase calls and puts of different strikes in the long strangle. This is done in the volatile market when there are a lot of swings, and the premium remains lesser than a straddle. A call option has a higher strike price of an asset compared to its market price.

Also, the put option has a lower strike price for an asset than the market price. This trading strategy offers huge profit potential on both sides. The trader can make an enormous profit when the security moves ahead of the break-even point in any direction. A trader incurs losses in the premium paid for the two options when the security is between the market prices at expiration.

In the short strangle, traders sell calls and puts of different strikes. This is done during rangebound action with a wider range of straddles. This strategy works for investors who want to gain from the premium from the sale of both options. However, the earnings are only when the price remains between the two strike prices and the options expire.

2: Straddle Strategy