Neutral Options Strategies – Most investors struggle to profit from stocks in a neutral trend. Instead, they wait until the trend changes significantly.
Options traders, on the other hand, can benefit from a neutral trend. They can do so by implementing appropriate strategies, which are still among the most popular investment types. Except for options trade, all other financial tools show a decrease in maximum values.
The only profitable trading method for stocks with a neutral trend remains options trading. Therefore, non-directional strategies are another name for neutral option trading strategies.
The profit gain is not affected by the stock’s rise or fall. There are numerous neutral strategies, such as the straddle, butterfly, strangle, condor, etc.
So, in today’s blog, let’s discuss the 5 Best Neutral Options Strategies for Options Trading:
The long straddle options strategy is one of the simplest market-neutral option trading strategies to implement. When implemented, the P&L is not affected by the direction in which the market moves.
This strategy involves buying the ATM Call and Put options. One should note that both the options should belong to the same underlying, should have the same expiry and also belong to the same strike.
As we see from the above image, the profits are unlimited, and the loss is limited.
Short Straddle involves selling the ATM Call and Put option as opposed to Long Straddle. Here, the profit is equal to the total premium received, and the maximum loss is unlimited, as shown below:
The strangle options strategy is similar to the straddle, but the only difference between them is that- in a straddle, we are required to buy call and put options of the ATM strike price, whereas the strangle involves buying OTM call and put options.
Long Strangle involves buying one OTM put and one OTM call option. Here, the profit is unlimited, and the maximum loss equals the net premium flow.
Whereas the Short Strangle involves selling a put and call OTM options. The example below shows us that the maximum loss is unlimited as the price rises or falls, and the maximum profit is equal to the total premium received.
A butterfly spread is one of the neutral options strategies that combine bull and bear spreads with a fixed risk and limited profit. The options with higher and lower strike prices have the same distance from the at-the-money options.
The long butterfly call spread involves: Buying one ITM call option, writing two ATM call options, and then buying one OTM call option.
The short butterfly spread strategy involves selling one in-the-money call option, buying two at-the-money call options, and selling an out-of-the-money call option.
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An iron condor is one of the options strategies that consists of two puts (one long and one short), two calls (one long and one short), and four strike prices. All must have the same expiration date.
Long Iron Condor Options Strategy involves selling a lower strike put, buying a lower-middle strike put, purchasing a higher middle strike call, and then selling a higher strike call.
A short iron condor spread is a four-part trading strategy that consists of a bear call spread and a bull put spread where the short put’s strike price is lower than the short call’s strike price. The same day is the expiration date for each choice.
You can also read our blog on 12 Common Option Trading Strategies Every Trader Should Know
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5. Covered Call
The covered call is essentially one of the options trading strategies, as derivates are typically a profitable stock or tool.
However, the goal of this strategy is not to profit from the options. Instead, its primary goal is to profit from stock in the neutral stage, with no price increase or decrease.
If one’s perspective on the stock is neutral, one would use it but not sell it, preferring to make a profit without moving.
One can even use it to reduce losses if the stock price falls. However, the protective put is better if you want to protect yourself from a large fall.
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