The term option trading strategies or option strategies may be new to a beginner in the investing game or the stock market. If you are also new to options trading, this article has got you covered. When done correctly via a trusted share market trading app, trading options is the most efficient method to create wealth over the long term. An option is a contract that lets investors purchase or sell any underlying instrument, be it a stock or an index, at a fixed price over a certain time, in exchange for the premium that the buyer pays to the seller.

This article will provide you with some of the best bullish and bearish option trading strategies that every investor or trader must follow while practising online investment.

Bullish And Bearish Option Trading Strategies

Given below is the list of some effective option trading strategies that every investor must try:

• Bullish option trading strategies

Firstly, let us explore the bullish option trading strategies.

• Bull Put spread

When a trader who trades options thinks that the cost of a particular underlying asset will increase shortly, they will implement the bull put spread option trading strategy. This option comes under the category of credit spreads. Even though it is not a complicated strategy, purchasing and selling puts and calls is more challenging than that.

Therefore, in simple words, this spread promotes selling a specific put option and purchasing a put option with a reduced strike.

• Bull call spread

It is an option trading strategy that comes under the debt spreads category. If you are an investor who is bullish on an ETF or stock while not willing to risk purchasing shares outright via an options trading app, you prefer buying a call option for a lesser risk bullish trade.

However, even though call options might be costly and bring more risk to you than you consider. You can purchase a bull call spread to minimise your cost and risk.

• Synthetic call

An investor buys and stores shares to begin a synthetic call, also called a synthetic long call. In order to hedge against a decrease in the price of the stock, the investor also purchases an at-the-money put option on a similar stock.

Many investors believe that this strategy to pledge shares is comparable to an insurance policy against the stock falling rapidly while holding the shares.

• Bearish option trading strategies

Given below are the bearish option trading strategies:

• Bear put spread

An investor or a trader can use a bear put spread when predicting that the price of a particular asset or security might decline slightly. Buying put options and selling the exact same number of puts on the exact same with the exact same expiry date at a lesser target price ends in a bear put spread.

• Bear call spread

When the outlook of an investor or trader around the market is quite bearish, they can use a double option trading strategy, also known as a bear call spread. With this method, the trader sells a shorter-term call option along with purchasing a longer-term call option with the underlying commodity and time duration of the expiration date, however, with a higher strike price. Hence, an investor or trader achieves a net profit by getting a higher option premium on the call, which is sold as compared to the cost of the call that was purchased.

Conclusion

Traders can implement multiple fundamental strategies that come with low risk rather than the high risk that is usually associated with options. So, traders who were afraid of taking risks can also enhance their returns by utilising options. However, it is important to acknowledge the associated risks with any investment to make a decision, whether the returns justify them or not.