Go-To Strategies for Any Market

Posted on Thursday, June 27, 2019 at 5:55 PM

As you probably know, there are several option strategies available to option traders depending on what the trader thinks the market and underlying will do. Of course, there are market risk, implied volatility bid/ask spreads and other factors to take into account as well. But every option trader should have a few go-to strategies depending on the outlook. Here are a few to consider.

Bullish

If you are bullish on the market or underlying (let’s hope both), consider long calls, bull call spreads and bullish calendar or diagonal spreads.

Bearish

If you are leaning toward bearish and a move lower for the market or underlying, look at long puts, bear put spreads and bearish calendar or diagonal spreads.

Neutral

One of the benefits of using options is to be able to capitalize from a neutral outlook on the market or underlying. Certainly, that cannot be done with a long or short stock position. Here you can consider iron condors (and condors), butterflies (and iron butterflies), calendar spreads and vertical credit spreads. Investors can think about covered calls and cash-secured puts.

Non-Bullish

For this outlook, you might not be bearish, but you don’t think the market or underlying will move in a bullish manner. You can consider bear call spreads or time spreads like a put calendar or diagonal. In addition, investors might look at covered calls.

Non-Bearish

For this outlook, you might not be bullish, but you don’t think the market or underlying will move in a bearish manner. You can consider bull put spreads or time spreads like a call calendar or diagonal. Investors might use cash-secured puts effectively too.

By no means was this supposed to be a thorough breakdown of all the option strategies. But your trading plan should have at least one for every conceivable environment out there. It will go a long way toward your potential success if you do.

John Kmiecik
Senior Options Instructor
Market Taker Mentoring, Inc.

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