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Three strategies every trader needs in their arsenal

March 17, 2021

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Three strategies every trader needs in their arsenal

Buying and selling stocks offers a 50/50 outcome for investors – the price goes up and they profit, or the price goes down and things get hairy.

Buying and selling stocks offers a 50/50 outcome for investors – the price goes up and they profit, or the price goes down and things get hairy.

Options trading is a more complex art. Savvy investors can profit whether markets rise, fall, or simply idle along.

That’s because options traders “are really trading probabilities”, according to OpenMarket CEO and managing director of TradeFloor Ivan Tchourilov.

Speaking alongside Reach Markets managing director Patrick Nelson at the Trading 360 summit, Mr Tchourilov said options traders need to look to implied volatility – a metric which tracks what markets expect volatility to do in the year ahead.

“Implied volatility is really how you get the edge with options,” he said.

The trick is for investors to have the right strategies to benefit from the volatility. Here are three strategies all traders should have in their arsenal.

The Iron Condor

The iron condor is a strategy where traders buy and sell both out-of-the-money calls and out-of-the-money puts. This strategy leaves traders with four options with different strike prices and the same expiration date.

It’s best used during times of uncertainty when investors expect the price of a company to settle between two prices.

The greater the volatility in the market, the fatter the distance between strike prices can be.

While the iron condor reduces the amount of winning trades, it increases overall profit.

Mr Tchourilov noted the way it is constructed effectively provides a ‘stop-loss’ mechanism to traders by limiting downside risk.

Long Straddle

In the long straddle strategy, traders buy both a call and a put option at the same strike and expiration.

The combination of both a put and a call means small upward and downward moves are cancelled out. The goal of the long straddle is to therefore profit from a very strong move in either direction.

Given calls benefit from upward moves and puts from downward ones, traders profit when the market moves in either direction and lose if the market stays flat.

With unlimited maximum profit on the upside and downside limited to going to zero, the long straddle can be very profitable if it’s well-structured and the trader moves quickly.

Trading a Breakout

Breakouts occur when an asset moves above the resistance level or below the support level. They indicate potential trading opportunities, both to buy and sell.

After looking at resistance and support levels, investors then confirm a potential trading breakout by checking if the current price is above the 52 week high and the 50 day and 200 day moving averages. From there, entry and exit points are planned.

Breakout trading thrives in volatility. When it’s executed well, these opportunities can bring in excellent returns with a sensible amount of risk. However, the rapid movements in price can generate emotion. It’s therefore important to stick to a trading plan with clear entry and exit points and goals.

 

This article summarises some of the information Ivan Tchourilov and Patrick Nelson shared during last week’s  ‘The Trading 360 Summit.’

You can watch a full recording below, or you can click here to book into our next week on the 24th March. Proprietary trader and high-level strategist Greg Tolpigin will join the panel to share his proven trading systems, strategies he’s currently deploying, and how new and experienced traders can get on top of market trends.

 

The Trading 360 Summit – Level Up Your Trading Game

Date: Wednesday, 24th March
Time: 7pm AEDT
Format: Online, 60 minute presentation + Q&A

This is a free event. Click here to book your spot.

 

Past performance is not a reliable indicator of future performance. The opinions expressed in this article are our personal views.

Any advice contained within this presentation is general advice and does not consider your personal circumstance, you should consider whether it’s appropriate for you. The information we are giving you is for educational purposes only. “Investing is about understanding your risk” and every time you invest in the share market there is a risk of loss.

Trading options is not suitable for everyone. There is a risk that you can lose more than the value of a trade or its underlying assets. You should only trade if you are confident that you fully understand what you are doing. If you are thinking about acquiring a financial product, you should consult our Financial Services Guide (FSG) at www.reachmarkets.com.au first.

 

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General Advice Warning

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