Ways To Profit From Stock Options Under Any Market Condition
The majority of seasoned successful stock traders will constantly preach to you that to make money, to extend longevity, or to just simply survive, you’ll need to to profit under any type of market condition. So this includes the market going up, down, or sideways.
Most new stock traders however, just know or are able to profit when the market is going up, and then find it difficult to experience any consistent sustained success if the market contradicts. For this reason alone, they don’t survive as stock traders for long.
The successful traders will also tell you that it is indeed possible for anyone to profit from any diverse market condition, regardless if the stock is on a bull or a bear run, or going sideways. Their secret is trading stock options.
What trading the stock options market offers is it gives the trader the opportunity to profit under any of these market conditions, as survival is the key for anyone to remain a successful stock market trader.
Trading Stock Options
So listed are some of the most common and popular ways on how these traders are able to profit from any type of market movement by applying different stock options trading strategies.
Strategies For Trading Stock Options When In Bull Markets
• Buy Call Option – What you’re able to do is purchase the same exact number of equivalent stocks but for a fraction of the price by making a “call” (bull) option, and then profit once the stock as predicted goes up.
If the stock happens to go down in price, what you’ll lose is the initial capital which you placed to buy the option, this instead of losing the entire amount of the stock which you would have placed when purchasing the stock itself.
• Selling Naked Put Options – Instead of buying a “call” option, what you’ll do is sell or short a “put” option, and then you would profit from the entire amount by selling that put option, this provided that the stock goes up.
• Bull Call Spread – What a bull call spread refers to is buying a “call” option at the money (current market price) and then selling short an “out of the money” call option of the same month. The advantage of doing this strategy is that you’ll profit once the stock goes up, and will also realize a profit when the stock goes sideways.
Option Strategies For Bear Markets
• Buy Put Options – Instead of shorting your stocks and then risking a margin call, what you can do instead is purchase a “put” (bear) option. Buying a put option is identical to buying a call option except that you’ll profit once the stock goes down in price instead of it going up.
• Selling Naked Call Option – Instead of buying a “put” option, you could instead sell short a call option, then pocket the entire amount which you made when selling the put option, provided that the stock goes down.
• Bear Put Spread – What a bear put spread refers to is buying a “put” option at the money and then going short, out of the money, “put” option which are of the same month. The advantage of doing this strategy is that you’ll profit once the stock goes down as well as profit when the stock goes sideways.
Option Strategies For Both Up or Down Markets
• Straddle – What a straddle refers to is buying a “call” option as well as a “put” option, both at the same exact strike price on the same stock. What this strategy does is it allows you to be able to profit regardless if the stock moves up or down, especially if you know that the stock is volatile but not sure which direction it will move.
• Strangle – Strangles are similar in concept to straddles but instead you will buy an out of the money “call” option, as well as an out of the money “put” option instead of at the money, this in order to reduce the cost of the position.
Option Strategies When The Market Goes Sideways
• Covered Call – If you happen to be holding on to a stock which is moving sideways, you could then collect “rent” out of it by selling the call option of that particular stock every month, and then pocket the entire amount of the sale if the stock continues to go sideways.
• Short Straddle – Instead of buying a “call” option and a “put” option as you would in a straddle, you would instead sell short them. By doing so, what you’ll do is create an option position which will profit if the stock remains to go sideways.
Stock Option Trading Completely Different
Although these option trading basics are generic, there are significant advantages and opportunities that trading stock options and profiting from them has over conventional stock buying, holding, and trading.
You can also do so under any market condition. These strategies which are listed are just a few of the variety of option trading strategies that you can use to tailor your specific stock portfolio needs.