Option traders employ bullish techniques when they expect an upward movement in an underlying assets' share price. A bearish technique is considered suitable when the stock price is predicted to fall. Cautious traders apply neutral techniques, when they do not know the direction in which an asset share price will move. Option trading strategies help traders hedge their position and make profits from asset price movements.
Bullish trading techniques can be employed when a trader believes the underlying stock price will move up in the foreseeable future. The technique chosen would depend on the traders' assessment of the time line within which a rally will occur and the expected increase in the underlying share price. Bullish strategies are aggressive, moderate or mild.
Bearish techniques are a mirror image of bullish techniques. They are usually applied when an underlying asset's share price is expected to fall. Traders use aggressive, moderate and mild techniques when a downward movement in stocks value can be predicted. A trader who uses these techniques would have to assess how steep a downward price movement would be.
Traders employ neutral options strategies (or non-directional) when they can not predict whether an underlying share price will go up or down. The ability to make a profit in these situations is not dependent on the upward or downward movement of the underlying assets' valuation. Instead, it is dependent on the estimated volatility of the assets' price. Neutral techniques include guts, butterfly, and straddle (long and short) and strangle.
Bullish on volatility and bearish on volatility techniques are a further breakdown of neutral option techniques. In highly volatile scenarios, bullish on volatility approaches such as the long strangle, long straddle, short condor and butterfly will meet traders' strategic requirements. Bearish on volatility techniques like ratio spreads, long condor, short straddle and short strangle would help a dealer make the most of a little or no movement in price.
Option combination techniques usually involve the simultaneous purchase and sale of different contracts. This enables most option traders to use multiple leg structures to reduce their risks. A trader could go long or short on the same underlying to secure a hedge on their position.
Option trading strategies can support various movements in the value of underlying assets. A dealer's expectation of the future would determine which technique he/she will apply in a scenario. However, it is advisable to seek expert guidance for clarity.
Bullish trading techniques can be employed when a trader believes the underlying stock price will move up in the foreseeable future. The technique chosen would depend on the traders' assessment of the time line within which a rally will occur and the expected increase in the underlying share price. Bullish strategies are aggressive, moderate or mild.
Bearish techniques are a mirror image of bullish techniques. They are usually applied when an underlying asset's share price is expected to fall. Traders use aggressive, moderate and mild techniques when a downward movement in stocks value can be predicted. A trader who uses these techniques would have to assess how steep a downward price movement would be.
Traders employ neutral options strategies (or non-directional) when they can not predict whether an underlying share price will go up or down. The ability to make a profit in these situations is not dependent on the upward or downward movement of the underlying assets' valuation. Instead, it is dependent on the estimated volatility of the assets' price. Neutral techniques include guts, butterfly, and straddle (long and short) and strangle.
Bullish on volatility and bearish on volatility techniques are a further breakdown of neutral option techniques. In highly volatile scenarios, bullish on volatility approaches such as the long strangle, long straddle, short condor and butterfly will meet traders' strategic requirements. Bearish on volatility techniques like ratio spreads, long condor, short straddle and short strangle would help a dealer make the most of a little or no movement in price.
Option combination techniques usually involve the simultaneous purchase and sale of different contracts. This enables most option traders to use multiple leg structures to reduce their risks. A trader could go long or short on the same underlying to secure a hedge on their position.
Option trading strategies can support various movements in the value of underlying assets. A dealer's expectation of the future would determine which technique he/she will apply in a scenario. However, it is advisable to seek expert guidance for clarity.
About the Author:
There are numerous proven option trading strategies that players can utilize for making profitable trades in the market. High probability trading is the target for every trader and is possible with the right methods.
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