Now that you know what options are, the next step is to employ some basic strategies that will channel that knowledge into a profitable future. The most commonly used by beginners are the basic long call and long put. A long call profits from an upward move and a long put benefits from a downward move. When you want to benefit from a move in either direction then you buy both a call and a put of the same series, usually close to where the underlying is trading. You want big movement in the underlying with that position. You can turn things around by selling a put, which benefits from an upward move or selling a call which benefits from a downward move. You can pair them together. That position benefits from as little movement as possible. I’ll show you how buyers of options gain leverage but suffer from the fact that options are a wasting asset. The opposite holds true for short options positions.
The next thing that I’ll teach you is how to create synthetic options positions. This can be done by combining the underlying with options using different combinations. You can also create a synthetic buy or sell of the underlying by creating a specific combination of call and put options. If you are wondering why you should bother creating a synthetic short put when actual short puts are listed you shouldn’t. If you can sell the synthetic put for more than the actual put then you would be foolish not to. Knowing the synthetics inside and out is a must for all options traders.