Bullish strategies are usually employed by traders when the price of an underlying asset is expected to rise. Bearish techniques are considered to be appropriate when the movement in price is predicted to be in the opposite direction. Neutral techniques are applied when a trader is not sure about the direction prices will move. Option trading strategies can be used for hedging a traders’ position or for making profits on stock price movements.
Bullish techniques are usually employed if a dealer expects the share price to move upwards. Many bullish techniques can be used to make profitable trades. Aggressive, moderate and mild techniques can be applied on the basis of a traders’ expectation of price rallies within a time frame.
Traders can also make profits from a downward movement in the value of an underlying asset, if they can predict it correctly. Aggressive, moderate and mild bearish approaches can be used to good effect within the expected time limit of a fall in value. Dealers have to be assured they can correctly forecast how steep the fall in value will be.
When traders cannot predict how a share price will move, they employ neutral (or non-directional) techniques to secure their position. In these situations, the price volatility of the underlying determines a traders’ profitability. Neutral techniques like guts, butterfly, long straddle, short straddle and strangle are used by traders in these sensitive scenarios.
Many neutral techniques are bullish or bearish on volatility. Bullish on volatility techniques are profitable when an assets’ share price makes changes significantly. Bullish on volatility techniques includes short condor, short butterfly, long strangle and long straddle. While, neutral bearish on volatility techniques are profitable when an assets’ price has little or no volatility. Bearish on volatility techniques includes short straddle, long butterfly, long condor and the short strangle.
Option strategies are not only employed for making profits on the movements in the value of underlying assets, but also for hedging a dealer’s position. Option trading can help a dealer to reduce his/her risks by going long and short on the same underlying asset. A combination technique is employed by a trader when these simultaneous contracts are purchased on the same asset.
In conclusion, options techniques support different movements in underlying assets that can be bullish, bearish or neutral. Neutral techniques can also be bullish or bearish on volatility. It is best to seek professional advice for detailed guidance when considering the use of option trading strategies.
There are numerous proven option trading strategies that traders can use for completing profitable trades in the market. High probability trading is the target for every trader and is possible with the right techniques.