When the options trader expects the price of a stock to increase the trader must analyze when the stock price will go up and the time frame in which this will occur. This analysis will help with selecting the most beneficial bullish option trading strategies to employ.
The most obvious way to earn from an increasing price is to buy call options. However, buying calls may not be the best choice to make returns from moderate increase in prices since they do not offer protection should the prices plummet or remain stagnant. By employing strategies apart from purchasing call options, it is likely to gain notably.
Some of the bullish options strategies that may work include:
Bull Call Spread
Bull call spreads are a type of vertical spread; this kind of spread is also sometimes referred to as a long call vertical spread.
This options strategy involves purchasing call options at a specific strike price while also selling the same number of calls of the same asset and expiration date but at a higher strike. A bull call spread is used when a moderate rise in the price of the underlying asset is expected.
Bull Put Spread
The bull put credit spread strategy is very straight forward. However, because of the level of trading required, it might not be suitable for beginners. Additionally, just like in the bull call spread option, two transactions are necessary to create a credit spread. For a Bull Put Spread Example, you can visit this link: Bull Put Spread Example
Using this spreads promises two benefits. First, if a trader writes in the money puts when applying this option, the trader will still make a profit even if the stock fails to increase in price. Even though the puts will eventually expire, the trader will end up keeping the entire upfront credit. The other benefit is that the trader limits potential losses by purchasing the out of the money puts. This level of protection is appealing even though it comes at a price.
Given that there are only two transactions employed, the commission costs are significantly reduced. It is easy to estimate the loss and profit potential while applying the bull put spread strategy.
Bull Ratio Spread
This method is a model of flexible options used in trading. It is applied when traders expect an increase in price of a stock. Additionally, this plan can be used to reduce the upfront costs and help the option traders to profit in case the price of a stock stays the same or falls. The greatest advantage of a bull ratio spread strategy lies in its flexibility. Traders can achieve their aims by correctly employing this strategy. However it is complex and difficult to employ; you can find a detailed analysis of the strategy here.
Short Bull Ratio Spread
This trading strategy is relatively complex. It is not suitable for beginners at all. This approach involves two strategies to create a credit spread.
Bull Butterfly Spread
This plan can be divided into two: the call bull butterfly spread and put bull butterfly spread. This option is quite complicated and requires three transactions to create a debit spread. It is not recommendable to beginners.
Bull Condor Spread
Just as in the bull butterfly spread, this strategy can be divided into two. The call bull condor and the put bull condor spreads. This approach is not suitable for beginners. Moreover, it requires four transactions to create a debit spread.
Bull Call Ladder Spread
This strategy requires three transactions to create a debit spread. It is quite complicated and not good for learning traders.
Advantages of Bullish Option Strategies
Applying bullish options strategies, in general, can be rather advantageous. Some of the benefits associated with these plans include:
Bullish strategies can create credit spreads.
These spreads return payment upfront, unlike debit spreads which carry costs. The idea is, by using bullish strategies to trade, traders can control increase in price of the security in question while also controlling other factors relevant to the trader like the level of risk and the amount of capital needed.
There are numerous downsides of buying call options.
The risk that the contract in question may expire valueless and generate no value in return best exemplifies such demerits.
Buying calls will require a significant increase in the price of the security in question so as to make a profit.
It is only possible to avoid such drawbacks by using other approaches such as bullish strategies.
Each bullish strategy has unique advantages and characteristics. The vast pool makes it possible to traders to choose the option that is most likely able to help the trader achieve his desired situations. Bullish options can be divided into three sections: very bullish, moderately bullish, and mildly bullish.
The very bullish option of trading is the simple buying calls strategy that is mostly used by learning traders.
Moderately bullish options set a price for the Bull Run and make use of bull spreads to minimize risks. They cost little to employ, however, maximum profits are capped for these strategies. They include bull put credit spread and bull call spread.
Well, that's all for our options strategies to use in bullish markets. Do check out our other article on bearish options strategies here, as well as our comprehensive list of the best options trading strategies.
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