Options Strategies for Bullish Market:- Options trading is one of the most popular forms of derivative trading. Options traders are increasing regularly because of the amount of money that could be made out of it. Options trading is an ocean of money, either you take it all or you give it all, it is hard to find a mid-way sometimes. However, if it is done systematically and with appropriate risk management, it can turn out to be a regular source of income for you.
In this article, we will list down some of the popular option trading strategies that you may follow in a bullish market. They are as follows;
- Buy Plain Vanilla Call Option or Long Call
Buying a plain vanilla call option is the simplest strategy to follow in a bull market. In this strategy, you buy a call option with the expectation that the price of stock or index would move higher. The maximum loss that you can incur in this strategy is the amount of investment.
For example, Reliance is quoting at Rs. 2,400 and if you expect the price to rise then you can purchase 2,400 CE (call option) and play the upward movement.
- Buy Protective Put
A protective put strategy is a combination of buying a future or cash market position along with an option. In this strategy, you are bullish on the stock but you protect your downside risk in case of volatility by buying a put option. The put option in this strategy is purchased at a lower strike price. The loss in this strategy shall be the downside gap between the future or cash price of the stock and the price of the put option plus the premium paid on it irrespective of how much the share price goes down. When the price of future or cash stock moves up the profits are unlimited after you cover your put option cost.
- Bull Call Spread
A bull call spread is a good strategy when you are mildly bullish on a stock. In the bull call spread, you buy a call option at a lower strike price and then sell a call option at a higher strike price. This strategy is very effective when you are mildly bullish on a stock. In this strategy, the premium received on the option sold reduces the cost of buying the option. Therefore, your losses and profits in this strategy are limited.
- Covered Call Strategy
The covered call strategy is for risky traders. In this strategy, you buy futures and sell the call option at a higher price. Even with a little movement in the futures price, you can make a profit in this strategy because the sold call option reduces the cost of holding the futures. However, in this strategy, you must be vigilant about the downside risk. In case the stock price crashes sharply then you need to cover the premium paid on the option. Therefore, this strategy must be implemented only with a stop loss in place and when you are sure that the price of the stock would not correct sharply.
- Sell Put Options
Selling put options is more like an anti-bearish strategy rather than a bullish one. In this strategy, you bet that the price of the stock will not fall below a certain price so you sell a lower put option. However, when the price of the stock falls sharply or below your expected levels, the losses can be unlimited.
The above-mentioned are some of the strategies that you may adopt in a bullish market. However, you must always keep in mind the risk involved in options trading. Risk management should be the priority and profits are secondary. Options are one of the most wonderful trading instruments because they offer you the opportunity to create unique strategies and earn profits in different market scenarios.
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