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Options strategies for bull markets are usually adopted by traders when they expect the price of the underlying asset is going to increase. These strategies can help any option trader by reducing volatility in their option trading or taking advantage of it. These bullish options strategies also help investors improve their risk-reward level or to help capitalize on increased volatility.
However, to choose the most appropriate option strategies, you need to understand how the underlying price can move upwards and the associated time frame relating to the same. If a correct strategy is adopted, you will not only be able to generate high profits, but you will also be able to safeguard your capital outlay and prevent losses whereas using the wrong options strategies will do the opposite. If you are on the hunt for good options trading strategies outside of simple calls and puts that will work in a bull market, this article will significantly assist you.
While trading options can seem difficult as there are many different types of strategies including covered calls, selling options, iron condors, iron butterfly, wheel strategy, bear call spreads, bear put spread, calendar spread, long calendar spread, vertical spreads and many more, we will share 6 simple options strategies that any trader, even beginners, can use.
Options Strategies for Bull Markets
6 Best Options Strategies for Bull Markets You Need to Use
Here’s a look at six ideal option trading strategies you can deploy:
1. Long Call
Long Call is one of the most accessible and convenient option trading strategy to adopt when markets appear to rise. Because of its simplicity, this option strategy for bull markets is most suitable for newbie options traders already well versed in buying and selling stocks. The Long Call strategy is the first and most common options trade deployed by newbie options trading investors. The risk of this is that your options can expire to be worthless if the stock does not increase due to time decay also meaning their is no more intrinsic value in your options.
According to this strategy, you need to take a single position of buying a call option that can either be ITM, ATM, or even OTM. Therefore, when you go long on the Call and sell it later on at a higher price when the price of the underlying moves up, you can book decent profits. Overall, the best thing about the Long Call Strategy is its limited risk approach and the ability to generate unlimited profits. Similarly, you can make trades using a covered call or naked call. The bearish version of this strategy is a simple or naked put. Some investors can trade options using puts and calls to hedge against a market slide, this is also called a “short position”.
2. Bull Call Spread
In the Bull Call Spread strategy, two call options are used to create an array containing a lower and upper strike price. In this, there is one long Call at a lower strike price while the other short Call is at a higher strike price. Moreover, the expiration dates of both options are similar. The structure, besides, is such that the trader bets on the fact that the stock will have a limited increase in its price level. Also, the premium collected from the selling of a call option is utilized in balancing the premium paid for the long Call.
In a Bull Call spread, a profitable trade can be earned when a price rises. The best thing about this bullish options strategy is that it limits the losses of owning a stock, although the amount of profits is limited to the difference between the strike price and the spread’s net cost, including commissions. The risk level is also contained within the spread cost, including commission.
3. Bull Put Spread
You can use a Bull Put Spread if a moderate rise in the underlying asset price is expected. To construct this strategy, you must buy a put option on security and sell another with the same expiry date but at a comparatively higher strike price. The premium obtained, moreover, in the case of the short put leg of a bull put spread, is much higher than the premium received for the long put, and thus to begin this strategy, you need to obtain an upfront payment or credit.
Notably, by executing a Bull Put Spread, the maximum loss gets limited to the difference between the strike price and the net credit received. The maximum profit, on the other hand, is the differential amount between the premium costs of both options. But profits can be booked only when the stock’s price closes above the higher strike price at the expiry time.
4. Bull Ratio Spread
The Bull Ratio Spread strategy involves two transactions in which one needs to buy and write calls for different strike prices with the same expiry date. It is an extension of the Bull Call Spread strategy that allows investors to profit when the underlying price rises. However, it has more complications, although its flexibility is way higher.
As the name suggests, the strategy involves a fixed ratio between the calls one buys and the calls one writes. Ideally, the written calls should always be more OTM than those bought. Also, when more calls are being written, the investor gets more premium to buy the calls and vice versa. Despite all these advantages, this bullish options strategy is not that suitable for beginner-level options traders due to the added complexity in its structuring.
5. Synthetic Call
A Synthetic Call approach is a unique strategy in which stock shares and put options are used to simulate the performance of a call option. Also referred to as the married put or protective put, under this strategy, the trader buys an ATM put option on the same stock to protect themselves against depreciation in the stock’s price. Options traders can use this options strategy for bull markets if they are concerned about near-term uncertainties.
The best thing about the synthetic call strategy is its ability to generate unlimited profit because there is no cap on the underlying stock’s price appreciation. On the other hand, losses are also limited to the sum of the stock price and the put premium, less the put strike price.
6. Bull Condor Spread
Bull Condor Spreads are designed to profit from situations when the price of a security rises to within a forecasted price range. It is an advanced strategy consisting of four separate transactions, i.e., selling a lower strike put, buying a lower-middle strike put, purchasing a higher middle strike call, and then selling a higher strike call. Moreover, each of the options traded should expire on the same date. Using Bull Condor Spreads, the investor’s maximum loss gets limited to the amount of net premium paid, while the profit earned equals lower-middle strike price-lower strike price-net premium paid.
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