Stock option trading offers more flexibility, leverage, and limited risk than any investment vehicle today. At this point in financial history the availiability to access the derivative markets with online option trading now puts the power of these sophisticated instruments in the hands of the trader on Main Street as well as Wall Street. In contrast, the potential of these instruments can also be a little intimidating for some aspiring option traders because some strategies seem so complex. However, by gaining a foundation in four basic option strategies you can begin mastering the building blocks of all the available strategies that stock options have to offer. The basic strategies are four in number and are the long call strategy, the naked call strategy, the long put strategy, and the naked put strategy.

A long call strategy is taken when a trader is bullish on a given stock and looks to utilize the leverage of options to capture a greater gain on a stocks upward move. A call option allows the option trader to control 100 shares of a stock for a small premium while restricting his risk to just the price of the premium. This strategy allows your reward potential to be unlimited while your risk is limited to the cost of the call option. As the expiration date for the call option approaches though time decay works against this position so you must factor time into your trading decision when using this strategy.

The short call is easy to execute but is a risky strategy given the risk to reward profile which makes this somewhat of an advanced stock option strategy. The strategy is used if you believe that a stock is going to decline or stay at the present value. You implement the strategy by allowing someone to sell a call option to you. Your reward is the value of the premium at the time the call option is sold to you. This lets the seller of the option assign his risk to you while hedging his position. Time decay works for you as you approach the expiration date for the option you stand to gain more of the premium at assignment. The short call exposes you to uncapped risk if the stock rockets higher in price value and most brokers will not allow you to trade this strategy unless you are very experienced with stock option trading or hold a position in the stock that you are trading this strategy on.

The long put strategy is the inverse of the long call strategy where you are looking for the stock to decline rather than rally. When you buy a put option you control 100 shares of stock in a company and lets you take advantage of enormous leverage. Your reward potential is theoretically unlimited while your risk is limited to the cost of the put option. You must be sure to give yourself enough time to profit with your trading method because time decay works against you with this strategy.

The naked put strategy is implemented when you are bullish on a particular stock or believe that a stock will remain static for a certain amount of time. This strategy allows time decay to work for you and earn income. This is considered an advanced strategy due to the enormous risk if the stock falls in price which exposes you to almost unlimited risk while your reward is limited to the put option premium.

There are over 60 option strategies to trade for huge returns in today's markets and how you use them can be for your advantage but it all starts with these four basic strategies detailed here. By taking the time to see how each of these strategies work in the market individually you will begin to understand how they work in combination with each other. Soon, you gain mastery of stock option trading and how they are implemented to put you in the best position to profit while limiting your risk.

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