Learn More About Options Trading Strategies
To use the best options trading strategy for a particular situation, investors need to assess general market trends before performing an analysis. The best techniques to use will differ, depending on whether there's a bear, bull or neutral market.
When there's a bear market, options traders will be expecting the price of a stock to decrease. The calls and puts they make will reflect the market's general downward trend and will seek to maximize their returns by predicting just how far a stock's value will fall, and how quickly it will reach its predicted low.
The best options trading strategies for bear markets use these principles:
- It's rare for a stock's price to make a rapid, sharp drop--sharp drops occur over time, and rapid drops tend to be less dramatic
- Set a target value for the stock
- Set a target date for the predicted value
- Reduce risk by using bear spreads
Bull markets use similar principles but apply them to an upward-trending, rather than downward-trending, market. An entirely different set of tools should be used when the market is non-directional, and while this is the case roughly two-thirds of the time, these techniques are the most advanced and require careful study and intensive practice to master.
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