Derivatives Trading Basics
by 5paisa Research Team Last Updated: 2022-06-15T19:04:59+05:30

Introduction

Be it the NIFTY, BANKNIFTY or individual stocks, now is perhaps the best time to trade options. The market has witnessed spectacular, never-seen-before momentum since the mid-2020s, prompting traders across categories to implement chosen strategies to strike gold in the market. The following sections describe bullish options strategies or options strategy for the bullish market for you to trade efficiently and earn gravity-defying returns.

What are Bullish Options Strategies?

Simply put, bullish options strategies are techniques that work specifically in the bull market. Investors apply bullish options strategies when they are certain that the market or individual stock(s) will rise. While framing an options strategy for the bullish market, investors generally analyse the support and resistance levels of the asset and choose the best strike price. However, if the market or stock(s) do not behave according to your prediction, you may lose a considerable amount.

Which are the Best Bullish Options Strategies?

1. Buy Call Options Strategy

This is the simplest options strategy for the bullish market. With a call option, you get the right to buy one or more lots of the underlying asset at a specified and predetermined price (known as the Strike Price) on or before the specified date. If the asset price becomes at-the-money or in-the-money on the contract expiry date, you make a profit. The risk in this strategy is confined to the premium you pay while buying the call option.

2. Bullish Spread Option Strategy

The bullish spread options strategy is also known as the bull call spread. You can apply this strategy when you are bullish but not convincingly certain that the market will rise. In this strategy, you buy an in-the-money call option and sell an out-of-money call option of the same expiration date. When you sell a call option, you get the premium and use that amount to buy the call option. While the profit in this strategy is usually less than the buy call option strategy, so are the losses.

3. Bull Ratio Spread

The bull ratio spread is a highly profitable options strategy for the bullish market. But, this strategy suits expert investors more. In this option strategy, you buy a call and sell another call in a ratio. Here, the quantity of the sell call is higher than what you buy. This strategy is highly remunerative because you can profit even when the asset price reduces or there is no movement in the underlying asset before the expiry date. Don't try it as a beginner, though.

4. Bull Call Butterfly Spread

The bull butterfly spread is a limited profit limited loss options strategy for the bullish market. This is also known as the bullish call spread option strategy since you have to buy or sell three calls. Here, you predict the underlying asset's price on the contract expiration date and buy one low-strike call, sell two high-strike calls, and buy one high-strike call. The calls you buy and sell must be with the same expiration date. You can make maximum profits if the underlying asset's price is near the sell call's strike price. 

5. Bull Condor Spread

The bull condor spread is one of the easiest and yet the most advanced bullish options strategies you can apply to make decent profits. This strategy requires creating four transactions to minimise the chances of a loss and maximise the profit. Here, you evaluate an underlying asset, predict a range, and choose an expiry date. After this, you sell one low-strike call and one high-strike call and buy one low-strike call and one high-strike call. The maximum losses in this strategy are defined, and so are the profits. 

Apply The Bullish Option Strategies With a Free Demat Account

It's time to apply the bullish options strategies mentioned in this article to reap rich dividends. 5paisa makes options trading super easy with a free Demat and trading account. Submit your PAN and Aadhaar and get ready to dive into the world of super-profitable investment. Remember, the best option strategy for the bullish market begins with the right broker.

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