For most beginners in trading, terms such as option trading strategies and option strategies are alien to them. However, to crack the code of the investing game, these are essential concepts to understand. According to a market survey conducted by expert traders, the winning probability using options trading strategies goes as high as 98%, yielding up to 40% returns.
Therefore, when employed carefully, option trading strategies are the best-known methods of amassing wealth over a long period of investment. Future and Options Trading are the key to a new realm of opportunities that can provide young traders an early advantage. Options are best suited to a bullish market. However, when a bear market prevails, bearish option strategies must be employed.
Therein lies the beauty of options trading, which can easily adapt to different market conditions. Moreover, options are always non-linear, which grants you the freedom to create unique trading strategies by blending them with other futures and options. Now that we understand the value of options trading, let's look at the different types of options available to you.
Therefore, when employed carefully, option trading strategies are the best-known methods of amassing wealth over a long period of investment. Future and Options Trading are the key to a new realm of opportunities that can provide young traders an early advantage. Options are best suited to a bullish market. However, when a bear market prevails, bearish option strategies must be employed.
Therein lies the beauty of options trading, which can easily adapt to different market conditions. Moreover, options are always non-linear, which grants you the freedom to create unique trading strategies by blending them with other futures and options. Now that we understand the value of options trading, let's look at the different types of options available to you.
Options Trading Strategies Variants
Call options and put options are the two important types of options that you need to become familiar with. The first variant, or the call option, is more like a contract that gives the holder the right without the obligation to purchase an underlying asset within a fixed period of time. A put option, on the other hand, is exactly the opposite, providing the contract holder the right to sell the asset within the expiration period.
This distinction serves different aims and allows investors to employ them according to market conditions. In this regard, investors use call options to succeed in a bullish market, while the put option is more suited to a bearish market. Therefore, market trends have a huge role to play in the specific type of options trading strategies used. Accordingly, these are divided into three primary types, which are Bullish, Bearish, and Neutral Options Strategies. Traders use an option trading app to execute these strategies effectively. In our guide, we will cover the 7 trading measures you may employ when the market is bearish.
This distinction serves different aims and allows investors to employ them according to market conditions. In this regard, investors use call options to succeed in a bullish market, while the put option is more suited to a bearish market. Therefore, market trends have a huge role to play in the specific type of options trading strategies used. Accordingly, these are divided into three primary types, which are Bullish, Bearish, and Neutral Options Strategies. Traders use an option trading app to execute these strategies effectively. In our guide, we will cover the 7 trading measures you may employ when the market is bearish.
7 Bearish Futures and Options Trading Strategies
Traders often turn to bearish future and option trading strategies when they deduce that the value of the underlying asset will dip. If used properly and at the right time, these seven strategies may be most effective.
1. Bear Call Spread
A Bear Call Spread is a strategy where the investor buys and sells a Call Option with the same expiration date and underlying asset but at a different strike price. The strike price is lower in this case, but you are compensated for it with a hefty premium. The same goes for buying a call option using this strategy. Due to this advantage, the initial burden of investment is greatly reduced. Moreover, the investment poses a lesser risk because the investor is protected by the premium received from selling the Call Option.
Any investor worth his salt uses an advanced Options strategy builder that enables him to study the trajectory of an underlying asset price. If he anticipates a moderate decrease in the asset price, he may use this strategy to make up for the shortfall. The investor gets handed a net credit as soon as he enters the trade, which is why this method is also called bear call credit spread.
2. Bear Put Spread
In order to successfully use this strategy, the investor must obtain an in-the-money(greater) put option and then sell an -out-of-the-money (lesser) put option on the exact underlying asset and expiration date. The trader incurs a loss, but the strategy’s purpose is to reduce the purchase price of a Put option. This enables the investor to earn a profit when the stock price falls.
Therefore, this strategy mandates that the investor keep a bearish, pessimistic perspective. The investor earns a small profit, but the potentiality for a loss is also low.
Therefore, this strategy mandates that the investor keep a bearish, pessimistic perspective. The investor earns a small profit, but the potentiality for a loss is also low.
3. Strip
Whenever a bearish market is most turbulent, the best recourse is to fall back on the Strip option trading strategy. This technique carries a strong bearish bias where the “net debit” method has evolved out of the Long Straddle Method.
With a minor adjustment, the Strip method allows you to go long on Put with a supplementary lot, which provides you with the expected bearish bias. The advantage here is that the profit can be unlimited using this method.
4. The Bear Butterfly Spread
In this method, the trader takes a position by purchasing two short calls at the middle strike and simultaneously selling one short call each at the upper and lower strikes. The rules of this method dictate that the expiration dates assigned to each option must correspond to the other.
Moreover, the central strike must be spaced equally from the lower and upper strikes. Although quite tricky, if a trader seeks the aid of a SpeedBot partner program, he may easily execute the bear butterfly spread. Here, the maximum loss incurred is restricted to the Net Premium paid.
5. Bear Iron Condor Spread
This strategy is also called the “short” iron condor spread. This is a quadruple trading strategy that involves a bull put spread and a bear call spread, where the value of the short put is lesser than the value of the short call.
Each choice must have the same exact expiry date. The Net Profit received cannot exceed the Net Credit received after commissions. The risk is limited to the difference between the bear call spread and the bull put spread after taking out the credit received from the calculations.
6. Bear Put Ladder Spread
This strategy is a kind of bear put spread and is one of the most commonly used future and option trading strategies. This is used to draw out profit from a security that is declining in price. This tactic is most commonly employed when the trader does not anticipate the price of the security to drop drastically.
Whenever the graph falls greater than expected, the investor incurs a huge loss. The profits, on the other hand, are fixed to the circumstances when the value of the underlying asset dips between the put options’ strike prices.
7. The Synthetic Put
The Synthetic Put is a combination strategy where the short stock position is blended with the long call option. This method is also called the “long synthetic put”. Here, an investor who is in need of a stock purchases a call option at the money and prevents the stock price from increasing.
In this strategy, the risk is restricted to the strike price, whereas the scope of profit is endless. Therefore, many expert traders prefer this method in their investing strategy.
Conclusion
Given the multitudinous asset classes and the volatile market, it is important that traders have more than one bearish future and option trading strategies up their sleeves. We hope this article has given you the flexibility and ease of mind you were looking for. We wish you good luck in your future trading.
