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This article needs additional citations for verification. Option strategies are the simultaneous, and often mixed, buying or selling of one or more options that differ in one or more of the options’ variables. Bullish options strategies are employed when the options trader expects the underlying stock price to move upwards. Bearish combo called a Calendar Spread and not even rely on stock movement.
The trader can also just assess how high the stock price can go and the time frame in which the rally will occur in order to select the optimum trading strategy for just buying a bullish option. The most bullish of options trading strategies is simply buying a call option used by most options traders. The stock market is always moving somewhere or some how. It’s up to the stock trader to figure what strategy fits the markets for that time period. Moderately bullish options traders usually set a target price for the bull run and utilize bull spreads to reduce cost or eliminate risk altogether. There is limited risk when trading options by using the appropriate strategy.
Mildly bullish trading strategies are options that make money as long as the underlying stock price does not go down by the option’s expiration date. These strategies may provide downside protection as well. Writing out-of-the-money covered calls is a good example of such a strategy. However, Covered Calls usually require the trader to buy actual stock in the end which needs to be taken into account for margin. Think of options as the building blocks of strategies for the market.
Options have been around since the market started, they just did not have their own spotlight until recently. Bearish options strategies are employed when the options trader expects the underlying stock price to move downwards. It is necessary to assess how low the stock price can go and the time frame in which the decline will happen in order to select the optimum trading strategy. Selling a Bearish option is also another type of strategy that gives the trader a “credit”. This does require a margin account. The most bearish of options trading strategies is the simple put buying or selling strategy utilized by most options traders. Stock can make steep downward moves.
Moderately bearish options traders usually set a target price for the expected decline and utilize bear spreads to reduce cost. This strategy can have unlimited amount of profit and limited risk when done correctly. The bear call spread and the bear put spread are common examples of moderately bearish strategies. Mildly bearish trading strategies are options strategies that make money as long as the underlying stock price does not go up by the options expiration date. However, you can add more options to the current position and move to a more advance position that relies on Time Decay “Theta”.
These strategies may provide a small upside protection as well. In general, bearish strategies yield profit with less risk of loss. Neutral strategies in options trading are employed when the options trader does not know whether the underlying stock price will rise or fall. Also known as non-directional strategies, they are so named because the potential to profit does not depend on whether the underlying stock price will go upwards. Rather, the correct neutral strategy to employ depends on the expected volatility of the underlying stock price.