Options Trading has become increasingly popular, especially among Millennials. Many are drawn to it as a potential way to earn monthly passive income.
But remember, success in Options Trading needs discipline. Before you start, it’s crucial to figure out which trading style fits you best.
Generally, there are three types of Options Traders, each with their unique approach to entering and exiting trades. Let’s dive into these three types:
Directional Option Traders
Directional traders bet on whether the price of an asset will go up or down within a certain period. They either buy or sell options based on this guess. For instance, if they think a stock will rise, they might buy call options or sell put options.
Those who are more cautious might choose strategies like covered calls or puts for safety.
Key Option Greeks they use: Delta & Gamma
Delta Neutral (Non-Directional) Option Traders
Delta neutral traders don’t bet on a stock’s direction. Instead, they profit from price changes, regardless of whether the market is bullish or bearish.
An example of their strategy is selling straddles or strangles, focusing on benefitting from time decay.
Key Option Greeks they use: Theta
Volatility-Based Options Traders
Volatility-based traders don’t focus on market direction or time decay. They trade based on how much a security’s price is expected to move. The strategy is simple: buy options when volatility is low, and sell when it’s high. However, it’s quite complex and challenging to execute.
Key Option Greeks they use: Vega
All three types of traders can be successful if they stick to their strategies and manage risks well. When starting in Options Trading, it’s important to find the style that suits you. We lean towards delta-neutral strategies. What’s your preference?
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