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Bearish and Bullish Options Trading Strategies

March 25, 2022 by Daniels Trading| Tips & Strategies

In the financial markets, you can have three opinions about price: bullish, bearish, and neutral. No matter the market, volatility, or news cycle, these three biases are the end products of market analysis.

Here’s a brief look at each type of market bias:

  • A bullish bias is one that anticipates rising asset prices. If you’re bullish, you want to be long the market.
  • A bearish bias is one that anticipates falling asset prices. If you’re bearish, you want to be short the market.
  • A neutral bias is noncommittal. If you’re neutral, you don’t want to be long or short the market.

Let’s learn more about how you can use stock option trading strategies to cash in on your bullish and bearish market biases.

Bullish Stock Options Strategies

A stock option is a contract that gives the holder the right, but not the obligation, to buy (call) or sell (put) shares of stock at a specified strike price at some point in the future. Typically, a stock option contract is worth 100 shares.

Each option contract binds two parties: the holder and the writer. The holder pays a premium for call and put contracts; the writer receives the premium for honoring the option contract’s terms.

Two basic ways bullish shares traders can secure long-side market exposure via options is through buying calls or writing puts.

Buying Calls

Basic bullish stock option trading strategies involve buying calls. When you buy a call, you secure the right to buy shares of stock at a specific strike price in the future. If price rises above strike at contract expiry, you make a profit. Profits are potentially unlimited.

Writing Puts

When you write a put option, you assume the liability of market movements beneath strike in return for a premium. As long as a stock’s price remains above strike, the put option expires worthless, and the writer makes a profit. Be aware that options writers assume unlimited risk.

The functionality of options gives traders a collection of alternatives when securing long-side market exposure. Buying calls and writing puts are two of the most common bullish stock options trading strategies.

Bearish Stock Options Strategies

If you harbor a bearish bias toward equities sectors or an individual stock, options give you the opportunity to profit from falling prices. Two of the most popular are writing calls and buying puts.

Here’s a brief look at the functionality of each:

Buying Puts

By buying a put contract, you secure the right to sell a block of shares at a strike price at some future point in time. If prices fall beneath strike, the trade is profitable. Put buyers enjoy potentially unlimited profit potential: As prices fall, gains increase.

Writing Calls

When you write a call contract, you agree to buy a block of shares at a strike price at some future point in time. As long as price remains beneath strike, the contract expires worthless, and the writer holds on to the premium. However, the risk exposure is unlimited because the writer is liable for all price rallies above strike.

Buying puts and writing calls are popular bearish stock options trading strategies. Each offers the trader short-side market exposure and a chance at profiting from falling prices.

Want to Learn More About Stock Options Trading Strategies?

The four strategies above are only the tip of the iceberg. There are many more, all with a unique approach to capitalizing on equities market volatility. No matter if you’re bearish or bullish small-caps or techs, there’s a stock option that’s right up your alley.

To learn more stock options trading strategies, check out the free StoneX course “Options Strategies.” There, you’ll find in-depth tutorials teaching the ins and outs of covered calls, married puts, bull call spreads, and bear call spreads. Before you buy or sell another share of stock, be sure to enroll in “Options Strategies.”

Option Strategies Course

Filed Under: Tips & Strategies

About Daniels Trading

Daniels Trading is division of StoneX Financial Inc. located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading was built on a culture of trust committed to a mission of Independence, Objectivity and Reliability.

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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