Today we will explore a couple of option strategies for a bullish outlook. Before we get started, let’s take a look at a few examples of what may be considered a bullish outlook, either for the market or an individual underlying.
The three most bullish opportunities in regard to technical analysis are a stock or the market breaking through resistance, a stock in an uptrend and a bullish reversal at support. A bullish move through a resistance level may be the biggest potential move of all. A stock setting higher pivot highs and higher pivot lows (uptrend) is also bullish, and a bullish reversal at a support level is a potential bullish opportunity as well. Let’s take an abbreviated look at a few potential option strategies to consider in your option trading plan.
Long calls, and puts for that matter, are often forgotten by many option traders after learning about spreads. But they still have the best risk/reward ratio of any option strategy. If your outlook for the stock is an expected big move or the stock is currently trading at its all-time high, what better way to potentially capture a big profit?
Bull Call Spread
A bull call spread is considered a bullish strategy because the stock generally needs to move higher to profit. A bull call might be used instead of a long call when a defined move is expected or the options are expensive because the underlying stock is expensive.
Call Calendars and Butterflies
For moderate or even really bullish expected moves, bullish directional call calendars and call butterflies are potential options too. Directional calendars and butterflies often give an option trader very nice risk/reward opportunities. The short call option or options are sold at the strike price the stock is expected to rise to at the short expiration.
Wrapping It Up
This was a brief look at potential option strategies traders can use for a bullish outlook. In the coming weeks, we’ll discuss bearish opportunities in another post.