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Option Strategies
Long Put Spread. Short Call Spread. The most bullish of options trading strategies, used by most options traders, is simply buying a call option. The market is always moving. It's up to the trader to figure out what strategy fits the markets for that time period.
10 Options Strategies to Know
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 trading options by using the appropriate strategy. While maximum profit is capped for some of these strategies, they usually cost less to employ for a given nominal amount of exposure. There are options that have unlimited potential to the up or down side with limited risk if done correctly.
The bull call spread and the bull put spread are common examples of moderately bullish strategies. Mildly bullish trading strategies are options that make money as long as the underlying asset price does not decrease to the strike price by the option's expiration date. These strategies may provide downside protection as well.
10 Options Strategies to Know
Writing out-of-the-money covered calls is a good example of such a strategy. The purchaser of the covered call is paying a premium for the option to purchase, at the strike price rather than the market price , the assets you already own. This is how traders hedge a stock that they own when it has gone against them for a period of time. 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. The market 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 has limited profit potential, but significantly reduces risk when done correctly.
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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 asset does not rise to the strike price by the options expiration date. However, you can add more options to the current position and move to a more advanced 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 asset's 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 price will increase or decrease.