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How to Trade Options in 4 Steps

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Dollar Index. Traders can buy call options or open a bull option spread if they think the Index will rise.

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If it appears that it will fall, traders can buy put options or open a bear option spread. Sometimes the U. Dollar Index trades in a buy option dollar range.

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When that happens, traders can use a straddle option strategy to take advantage of an upward or downward price breakout. You buy a call if you think the U. Your risk is limited to whatever you paid for the option.

How to Trade Options in 4 Steps

For example, if the U. To enter a bull call spread, the trader buys an in-the-money call option and sells an out-of-the-money call option.

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When you sell the call option, the option premium offsets the cost of the call option you buy. Dollar Index is at Bear Vertical Option Spread Strategy A bear vertical option spread is the flip side of the bull vertical option spread. You use it when you think the U.

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To open this spread, you buy one in-the-money put and sell one out-of-the-money put. The put you buy must have a higher strike price than the put you sell. The premium you collect from buying the in-the-money put option is subtracted from the cost of selling the out-of-the-money put option.

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Your risk is limited to the net cost of the options. Dollar Index is heading.

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To open the trade, you buy an equal number of at-the-money call and put options with the same expiration date. You profit when the U. Index moves higher or lower than one of the option strike prices.

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