The majority of the most successful stock market multi-millionaires has been able to consistently profit under any type of market conditions. If you are a trader who’s only been able to make money when stocks go up, then you will find it a battle to ever have any sustainable success or profits, and will quickly lose your capital. This is obviously a far cry from becoming a millionaire on the stock market.
It is however possible and those in the know do it consistently, to profit whether stocks go: up, down or or even sideways with options trading. If you are given the ability to trade any type of market condition, it can provide you with that elusive doorway for you to become that stock market success story. The ultra successful traders know that options trading is the key.
So outlined are some of the most basic, yet common ways by which traders profit from the different market conditions by trading options. First of all, you are able to buy the same number of your selected equivalent stocks for just a fraction of the price by using ‘call or put options’, and profit when the stock price goes up or down. If the stock happens to go against you either way, you’ll only lose the small premium that you placed down towards buying the stock option, instead of the whole amount of the stock price that you would have put down towards buying the stock itself.
Some Basic Strategies Of Options Trading
In options trading, the buying and selling of the instrument is expressed as following:
Call – Buy
Put – Sell
You can also sell a Call Option or buy a Put Option
Sell Naked Put Option
Instead of buying a call option, you can short sell a put option, thereby profiting the entire amount that you made on selling the put options, provided the stock goes up.
Bull Call Spread
A bull call spread is the buying of call options at the money (current price) and at the same time, selling short out of the money ‘call’ options of the same month. You will profit from this strategy when the stock happens to go up and you will also profit when the stock remains sideways. You will lose your premium if the stock price drops below the out of money option price purchased.
Some Option Strategies For Down Markets
Buy Put Option
Instead of going short on stocks and risking a margin call, you can just simply buy a put option. Buying a put option is the same as buying call options, except you will profit when the stock happens to go down instead of up.
Sell Naked Call Option
Instead of buying a put option, you will sell short call options and then profit the entire amount that you made on selling the ‘put’ options if the stock goes down.
Bear Put Spread
A bear put spread is buying put options at the money (current price) and then selling short the same out of the money put options of the same calender month. You will profit when the stock goes down and then profit as well when the stock remains sideways, provided it does not hit the ‘out of the money’ price!
Easy Option Strategies for UP or DOWN Markets
A straddle is buying a call option and buying a put option at the same strike price of the same stock. This strategy will allow you to profit whether the stock happens to move up or down, (but not sideways), and is an excellent strategy when you are sure that a stock is volatile, and will move greatly either up or down. The direction does not matter as long as it moves.
Strangle is a similar trading concept to a straddle, but you buy an out of the money call option and put options instead of at the money (current price) in order to reduce the price of the premium. You will profit when the market moves up or down past the call or put price.
Option Strategies For Sideways Markets
If you have stocks that’s stagnant and is just moving sideways, you can profit by selling a call option of that stock pocket the entire amount of the sale, provided the stock remains sideways.
Instead of buying a call option and a put option as described above in a straddle, what you would do is sell short them instead. This way, you will create an option position which will profit when the stock remains sideways and does not hit the call or option prices.
Obviously these strategies are explained in an extremely compact format and may be a tad confusing. But it is easier to profit from the movement of stocks in any market condition, either up, down or sideways by trading options. These are only very few basic ways to trade options that you can implement for your specific portfolio needs.