Learn More About Options Trading

Options trading strategies fall into one of three broad categories: bull market techniques, bear market techniques and techniques that are applied to neutral or non-directional markets. Given that stock exchanges trend towards bull markets or bear markets only about one-third of the time, investors need to make heavier use of neutral or non-directional techniques to realize consistent profits.

Generally speaking, options trading strategies that apply to neutral or non-directional markets don't depend on whether the value of the stock or commodity being acquired is expected to rise or fall. Instead, they attempt to predict the amount of volatility that the holding's value will go through--in other words, how much or how little its value will rise or fall.

Online investors use a very different strategic approach to options trading during a bull market. When there's an upward trend in the market, investors expect that the value of the stock or commodity will be on the rise. Then, making the correct move becomes a matter of predicting how high it will rise and how long it will take for the price to reach its expected peak.

The inverse principle applies to bear markets. Since investors will be expecting declines in the stock or commodity's value, they base the moves they make on how low and how quickly they think the price of the asset will fall. The bear call spread and the bear put spread are two common examples of bear market options strategies.

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