Option trading strategies are the key for being successful in options trading. They help a trader to make good profit from various states of market. They also help to reduce the risks of options trading. Correct implementation of these strategies can help a trader to have considerable amount of profit with a risk of little to nothing.
Options trading strategies usually means buying and selling more than one option with different or same strike price and expiration date. Combination of them makes the core of those strategies. These strategies differ in type depending on the market trend and the traders view on the future of market. Usually there are three types of option trading strategies. First one is of the bullish type. It depends on the view that the stock prices in the market will increase with time. Next one is of the bearish type, believing the stock prices will go down. The last one is of neutral type, which does not depend on the change of market price. Usually the neutral types depend on bearish or bullish trends of implied volatility trading system in the market.
Bearish strategies are applied if the trader is bearish on the market. They Depends on the stock price to go down, or at least not to go up to make profit. The simplest example of this type is buying simple put options practiced by the new traders. In this case, the profit is made when the price of the stocks goes down and the stocks are bought at lower market price and sold at higher strike price.
The mostly used strategy in this type is using the bear spread strategy. It is used when the trader is moderately bearish on the market. As the stock prices doesn’t often make steep downwards move, these moderate strategies are more practical. In this case, the traders usually set a target price for the decline. Mostly spread is used to reduce the cost of the trade.