00:00Welcome back to Decentralized News. So this is a quick video to really just touch on some of the top 10 DeFi option trading strategies that there are there.
00:12There are of course many options strategies in DeFi that both limit risk and also maximize returns.
00:22So with a little effort, traders can also just learn how to take advantage of the flexibility and the power of our stock options.
00:32And so, you know, we'll just dive right into it. Give us a like and a subscribe.
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00:43And so the first strategy is a covered call.
00:46So this is a very popular strategy and it's almost always preferable to naked stock because it does allow traders to pretty much profit when the stock does not move at all.
01:00And it does reduce the maximum losses to a maximum if the stock price actually falls.
01:07So the trade-off there is that you must be willing to sell your shares at a set price, the short strike price effectively.
01:18So for example, suppose an investor is using a call option on a stock that represents 100 shares of stock per call option.
01:28For every 100 shares of stock that the actual investor buys, one call option would simultaneously be sold against it.
01:38And this strategy is referred to as a covered call because in the event of, say, that the stock price increases rapidly,
01:50the investor's short call is also covered by the long stock position.
01:55So, you know, people say, you know, when to use it is when, you know, the market is bullish to neutral on the underlying stock that you're actually looking to or willing to sell at the strike price, of course.
02:09And, you know, that's one of the main DeFi option trading strategies that people do employ.
02:17The second one is a protective put or merit put.
02:20So in this strategy, an investor actually purchases shares of stocks and simultaneously also purchases put options for an equivalent number of associated shares.
02:33So an investor may choose to use this strategy as a way of protecting their own downside risk when holding a stock.
02:41So the strategy functions similarly to an insurance policy.
02:44It does establish a price flow in the event that the stock's price does fall sharply.
02:52So that's a protective put or merit put, which is a very popular DeFi options trading strategy as well.
03:01Protective collar is another one.
03:03So protective collar strategy is performed by simultaneously purchasing an out-of-the-money put option and writing an out-of-the-money call option.
03:12So this underlying asset and the expiration date must be the same.
03:18And this strategy is often used by investors after a long position in a stock has experienced substantial gains.
03:27And this actually allows the investors to have that downside protection as long as the put helps a stock or helps to actually lock in the potential sale price.
03:37So the trade-off there is that they may be obliged to sell shares at a higher price, which actually relinquishes the possibility of further profits as well.
03:48Another one is a long call spread.
03:50So this is a strategy where a vertical spread strategy effectively, which involves the simultaneous buying and selling of options of the same type are put in calls with the same expiration date, but a different strike price.
04:06So in a call spread strategy, an investor simultaneously buys calls at a specific strike price, that is, while also selling the same number of calls at a higher strike price, the call options will have the same expiration date and underlying asset as well.
04:23So this type of vertical strategy is usually utilized when an investor is bullish on the underlying assets and assets or expects a moderate rise in the price of that asset as well.
04:38So using that strategy, the investor is able to then limit their upside on the trade, while also then reducing that net premium spend compared to buying a naked call option outright.
04:51So long put spread, another strategy, the long put spread strategy is another form of vertical form spread or vertical spread.
05:02Basically, in that strategy, the investor simultaneously purchases put options at a strike price and also sells the same number of puts at a lower strike price.
05:12So both options are then purchased for the same underlying asset and have the same expiration date and this strategy is used when the trader has a bearish sentiment about the underlying assets and expects the asset to actually decline in price.
05:30And the strategy offers both limited losses and limited gains, of course.
05:34So the long straddle is an options strategy that occurs when an investor simultaneously purchases a call and a put option on the underlying asset, which is the same with the strike price and the same expiration date.
05:50An investor would use this strategy when they believe the price of the underlying asset will move significantly out of a significant range or specific range, but they are actually unsure of which direction the move is going to go.
06:06So theoretically, this strategy allows that investor to have that opportunity to make unlimited gains.
06:13At the same time, maximum loss this investor can experience is also limited to the cost of both options contracts combined.
06:23So that's that strategy, which is the long straddle strategy.
06:28And you also have the long strangle in a long strangle options strategy.
06:34The investor actually purchases an out of money call option and an out of money put option simultaneously on the same underlying asset with the same expiration date.
06:44So an investor who uses this strategy believes the underlying assets price will actually experience a large movement, but is unsure which direction the movement will go.
06:54So strangles will almost always be less expensive than straddles because the options are purchased out of the money options, of course.
07:05So that is the long strangle.
07:07So the long call butterfly spread is another option strategy.
07:12So this is an option strategy that combines the bay and the bull spreads with a fixed risk and a capped profit.
07:21So in a long butterfly spread, using call options, an investor will combine both a bull spread strategy and a bay spread strategy.
07:30This will also use three different strike prices.
07:33All options are for the same underlying assets as well and the same expiration date.
07:40So that is a very interesting one, the long call butterfly spread.
07:45We have iron condo, so this is a strategy.
07:49The investor simultaneously holds a bull put and a bay call spread.
07:54The iron condo is constructed by selling out of the money put, buying one out of the money put at a low strike.
08:03A bull put spread and selling out of the money call and a high strike, a bay call spread as well.
08:16So the options, they have the same expiration date and consist of the same underlying asset as well.
08:22Typically, the pull or the put rather and call sides have the same spreads with.
08:26So the same spread width, right?
08:30So this trading strategy ends a net premium on the structure and is also designed to take advantage of a stock experiencing low volatility.
08:41Many traders will use this strategy for perceived high probability of earning a small amount of premium as well.
08:46So the last one is iron butterfly, which is a strategy where an investor will sell at the money put and buy and out of the money put at the same time.
08:58They'll also sell at the money call and buy and out of the money call.
09:04And all options have the same expiration date and are in the same underlying asset.
09:10Although this strategy is similar to a butterfly spread, it also uses both puts and calls as opposed to one or the other.
09:19So these are generally just the sort of top strategies that you can use as far as DeFi option trading.
09:29And it's quite obviously a very in-depth, lengthy discussion to go into this.
09:38But I just wanted to condense all of that in one short video so we could just give explanations to each and every one of those strategies.
09:48So we talked about everything from the actual protective put, which was one of the strategies that we looked at.
09:58Firstly, we did look at covered call.
10:01We looked at obviously married put, which is protective put.
10:04Again, protective collar was another strategy.
10:06Long call spread was another strategy.
10:09And long put spread, another strategy.
10:13And long straddle, we talked about a long strangle.
10:17And long call butterfly spread.
10:19And also iron condor and iron butterfly, which makes up the top 10.
10:25Let me know what your thoughts are.
10:26Also, check out links in the description to the books, tokenized, trillions and blockchain applied.
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