Option trading is one of the most popular ways to make quick money in the stock market. However, the risks in this type of trading are also very high. This is the reason why common people are advised to stay away from option trading until they have experience. Today we are going to tell you about 5 such methods of option trading, which reduces in every type of market.
You come to know that the market will go up, down or sideways. Maybe, but did you know that there are a variety of options trading strategies that you can adopt for any type of market situation? Executing these strategies in the right way can help you maximize your profits and limit your losses. In this blog we will discuss all the three market trends ‘bullish, bearish and range-bound’ Will discuss strategies for.
Bullish: When the market is expected to move above current levels.
1: Bull call spread: This is The strategy is, in which the trader buys a call option and sells a call option at a strike price above it. The condition is that both the call options should have the same expiry date.
2: Bull put spread: This is a strategy in which the trader sells one put option and short Buys another put option at the strike price. Both the put options should have the same expiry date. This strategy is executed when the seller believes that the price of the underlying will rise or remain at the same level.
Bearish: When the market is expected to fall below the current level.
3: Bear Put Spread: This is a strategy in which the trader buys one put option at one strike price and sells another put option at a lower strike price. Both the options to be bought and sold will have the same expiry date. This strategy takes advantage of a fall in the price of the underlying before expiry.
4: Bear Call Spread: This is a strategy in which the trader sells a call option and buys another call option at the higher strike price. Both the option contracts should have the same expiry date. Use this strategy when you believe that the underlying price of the option you are selling will go down or remain below the strike price of the option after expiry.
Range-bound: When you think the market will move in a narrow range.
5: Short Straddle: The short straddle is a neutral strategy with defined profits and potentially unlimited losses. It involves selling a call option and a put option with the same strike price and the same expiry date. Traders adopt this strategy when they expect the price of the underlying to move up or down in a range before expiry, i.e. traders expect the security to remain in a tight range and volatility will be very low.
By understanding and adopting these strategies, traders can effectively manage risk and take advantage of various market trends.
Disq Lemar – The author is the director of Aps Talks. The views published are his personal. Before investing in the stock market, take the advice of your financial advisor.
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