When it comes to options trading, there are two parties involved in each contract: the buyer and the seller, and option strategies for each are different. For buyers new to the world of options, sticking to simple option strategies is usually the smartest move. The possibilities are widespread when it comes to this type of investing, but setting and sticking to a strategy is always the wisest way to go.

Before you start investing, it’s a good idea to gain an understanding of how options work, and then determine your option strategies based on a few main factors. The first factor is your financial goals, and the second is of course your tolerance for risk. Finally, you need to know how much of your investment you can afford to lose.

For buyers, also known as holders in the options market, option strategies are often fairly straightforward – at least for the average investor. Sticking to simple option strategies is the best way to get started with trading options before advancing to more complicated transactions. Every investor’s strategy should include a plan for selling the option with an emphasis on exactly when the loss has become too great to risk any further drop in the value of the option.

This means that you should know at what point you will choose to cut your losses and sell before the expiration date of the option. In some cases, it may be worth waiting it out and taking the risk that you will lose less or possibly still make a profit by allowing the option to continue. In other cases, you could lose less by selling early. You should make the decision of when to exit prior to investing in an option, because decisions made under pressure are not good option strategies.

You should also decide at what point you will take the profit and exit, understanding that waiting could mean more profit, or it could mean a decrease in the existing profit. Again, this decision should be pre-determined. It can be tempting to wait on more profit, but this can also sometimes be a mistake.

As buyers gain a more in depth understanding of option strategies from experience with the market, transactions will become more complex. This often means higher risk, but also more potential for profit. As a buyer, you should always begin with simple transactions and a strategy that is easy to understand as well as to execute.