Why Option Trading is the Best Strategy during a Recession




As the markets have crashed in every possible way in the last month, everyone has got burnt. Stocks have crashed by 40% on average, which means that lots of people got hit by more than 40%. Stock portfolios, retirement funds, mortgages all look disastrous, and no-one wants to hear" buy and hold" anymore. Overall trust in investing and the stock market is at an all time low. Every investing strategy looks bad. Or does it?Options trading is a strategy that is not dependant on the market direction, and in fact does better in volatile markets. That is what makes now the best time to trade options. So, why would you trade options? * Options trading does not need to be risky or a gamble. It is true that there are some people who do gamble with options, but they quickly lose their shirts and leave the field. Options trading gives you a wide range of strategies that have varieties of profit and risk potential. In fact, many strategies are significantly less risky than "buy-and-hold", and most are significantly more profitable than just about any stock trading strategy that you can name. * When trading options, most of your portfolio is in cash for most of the time. In fact, even when you are actively trading, you can still have your whole portfolio in cash! * When trading options, your trades are by definition short term, and you do not need to hang around for months and months to see whether you make a profit or not. * Options work in ANY market - up, down, or stagnant.Which strategies are best to use during a recession?Despite the massive leverage and profit potential of buying and selling calls and puts, it can look too much like gambling. In fact, if you don't have a watertight strategy, it can be extremely risky. That is why it better to look at other possibilities. * Selling credit spreads. This strategy can bring in 15-20% profit on your portfolio per month, with no cash outlay, although you do need to put up margin. You can start with $1,000, and the only technical knowledge that you need is to be able to run a simple trend analysis. No trade lasts longer than a month, and you have an 80% or better chance of winning your trade. * Selling naked puts. You effectively get paid to buy your favorite stock, or in other words, you can buy stocks at greatly discounted prices. Or you can treat them like credit spreads, and run trades every month in an upwardly trending market. * Selling covered calls. If you own a stock, you can sell a covered call on it every month. In a downward trending market, this helps you recoup your losses. In a stagnant market, it helps you reduce the net cost of your stock. In an upward trending market, you can lock in your profits on a stock and move on.These are all very low risk strategies, that can easily bring in a monthly income of at least 10-15% on your portfolio. You will not need to be glued to a computer screen day after day, and all three of these strategies can be accomplished with less than one hour per month in front of your computer. Each of these strategies takes advantage of time decay, the concept by which options lose value very quickly as their expiration date approaches.There are other strategies such as Iron Condors, Straddles, Strangles and so on, which can be very effective, but none are as reliable nor as safe as these other three. In addition, they often incur higher brokerage fees.Strategies such as DITM (Deep-in-the-Money) options trading can be useful if you favor a swing trading type stock strategy. You effectively buy stocks at about half price. Buying and selling calls and puts is hugely profitable, but highly risky. Both of these strategies are very susceptible to the effect of time decay.--The author is the owner of the site Swing-Trading-Options.com, which is a free educational resource for those who want to learn how to trade options successfully, without gambling or guessing. More information on the strategy described in this article can be found on this page: Swing Trading OptionsSource: http://www.articletrader.com
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