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Bullish Trading Strategies
Bullish strategies in options trading are employed when the options trader expects the underlying stock price to move upwards. It is necessary to assess how high the stock price can go and the timeframe in which the rally will occur in order to select the optimum trading strategy.
The most bullish of options trading strategies is the simple call buying strategy used by most novice options traders.
In most cases, stocks seldom go up by leaps and bounds. Moderately bullish options trader usually set a target price for the bull run and utilize bull spreads to reduce risk. While maximum profit is capped for these strategies, they usually cost less to employ.
Mildly bullish trading strategies are options strategies that make money as long as the underlying stock price do not go down on options expiration date. These strategies usually provide a small downside protection as well. Writing out-of-the-money covered calls is one example of such a strategy.
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Writing Puts to Purchase Stocks
If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]
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Effect of Dividends on Option Pricing
Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]
Best Binary Options Broker 2020!
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Bull Call Spread: An Alternative to the Covered Call
As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]
Dividend Capture using Covered Calls
Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]
Leverage using Calls, Not Margin Calls
To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]
Day Trading using Options
Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]
What is the Put Call Ratio and How to Use It
Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]
Understanding Put-Call Parity
Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]
Understanding the Greeks
In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]
Valuing Common Stock using Discounted Cash Flow Analysis
Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]
Bullish Options Trading Strategies
Bullish options trading strategies are strategies that are suitable for when you expect the price of an underlying security to rise. The obvious, and most straightforward, way to profit from a rising price using options is to simply buy calls. However, buying calls options isn’t necessarily the best way to make a return from a moderate upwards price movement and doing so offers no protection should the underlying security fall in price or not move at all.
By using strategies other than simply buying calls, it’s possible to gain some notable advantages. On this page, we look at some of the advantages of using such strategies, as well as the disadvantages. It also provide a list of the most commonly used ones.
- Why Use Bullish Options Trading Strategies?
- Disadvantages of Bullish Options Trading Strategies
- List of Bullish Options Trading Strategies
Why Use Bullish Strategies?
Buying calls is a strategy in its own right, and there are certainly circumstances when a simple purchase of calls is a viable trade. There are downsides of buying calls too though. For one thing, you run the risk that the contract you buy will expire worthless and generate you no return at all, meaning you lose your entire investment.
You’ll always be subject to the negative effects of time decay, and you will probably need the price of the underlying security to rise reasonably significantly in order to make any profit. This doesnвЂ™t necessarily mean buying calls is always a bad idea, because there are risks involved in any form of investment. It is, however, possible to avoid some of those downsides by taking alternative approaches.
Each bullish trading strategy comes with its own unique characteristics, and you can select a strategy that is most likely to help you achieve whatever it is you are aiming for. For example, you could use one that reduces the cost of buying calls by also writing calls with a higher strike. This could also help you reduce the negative effect of time decay on your position, something you could also do by using a strategy that involved the writing of puts.
Another advantage is that you can create credit spreads, which return an upfront payment, rather than debit spreads which carry an upfront cost. The main point is that by using bullish trading strategies, you can enter a position that profits from an increase in the price of the underlying security and also control other factors that may be important to you, such as the level of risk involved or the amount of capital required.
Using strategies other than a straightforward purchase of call options isn’t without disadvantages though. With pretty much any form of investment, if you want to gain extra benefits from your approach, then you have to sacrifice something in return. The same is true for options trading.
The main advantage of buying calls is that your profits are theoretically unlimited, because you continue to profit the more the price of the underlying security rises. The biggest sacrifice that you make with most bullish trading strategies is that the potential profits you can make are limited to a certain amount. However, given that most options trades are based on relatively short term price movements, and financial instruments don’t frequently move in price by huge amounts; this isn’t necessarily a major drawback.
Another disadvantage is the added complication of trying to choose the right strategy. The concept of buying calls is by itself relatively simple. If you think a financial instrument is going to increase in price, then you can benefit from that increase with a straightforward transaction. Complicating matters by trying to maximize your potential profits or limit your potential losses obviously involves more time and effort.
You’ll typically pay higher commissions too, because most strategies require multiple transactions to create spreads. However, overall you are far more likely to be consistently successful when trading options if you get to know all about the different trading strategies and learn which ones to use and when.
List of Bullish Options Trading Strategies
The following is a list of the most commonly used strategies that are appropriate for a bullish outlook. We have included some brief information about each one, including how many transactions are involved, whether a debit or credit spread is created and whether or not the it’s suitable for a beginner.
For more detailed information on each strategy, such as how to use it, its advantages, and it’s disadvantages, simply click on the relevant link. For more assistance in choosing a suitable trading strategy you may like to use our Selection Tool for Options Trading Strategies.
This is a single position strategy that involves only one transaction. It’s suitable for beginners and comes with an upfront cost.
Only one transaction is required for this, and it produces an upfront credit. It isn’t suitable for beginners.
This is a simple strategy suitable for beginners. It involves two transactions to create a debit spread.
This is straightforward but it’s not really suitable for beginners because of the trading level required. A credit spread is created using two transactions.
This is complex and requires two transactions; as such it isn’t suitable for beginners. It can create either a debit spread or credit spread, depending on the ratio of options bought to options written.
This relatively complicated trading strategy isn’t ideal for beginners. Two transactions are involved, and a credit spread is created.
There are two types of bull butterfly spread: the call bull butterfly spread and the put bull butterfly spread. It’s a complex trading strategy, requiring three transactions, that creates a debit spread. It isn’t suitable for beginners.
There are two types of bull condor spread: the call bull condor spread and the put bull condor spread. This strategy requires four transactions and it’s not suitable for beginners. It creates a debit spread.
This is a complex trading strategy requiring three transactions. It creates a debit spread and it’s not suitable for beginners.
Bullish vs Bearish Market and How to Profit Trading Either One
Watch our video on the differences between bullish vs bearish markets when trading or investing. It’s officially 2020 and the markets are(currently) extremely bullish – do you know how to profit in bull and bear markets? You should! Also, read below to get some takeaways regarding market sentiment and learn how this can help protect your hard earned capital.
The foundation of trading is built by investors, hedge funds, banks and traders who are either bullish or bearish. The fight between buyers and sellers forms candlesticks, patterns, support and resistance. But most of all. opportunity to make MONEY!
The video above explains the differences between bearish vs bullish and how this battle affects the price movement of stocks and how to make money in either direction.
Why Is It Called Bullish vs Bearish and What Are the Differences?
- The stock market is a battle between the bulls (long buyers) and the bears (short sellers) hence the phrase bullish vs bearish. The tug of what happens daily and forms important candlestick patterns on charts. These patterns are known as support and resistance.
Being bullish vs bearish on a stock is an important distinction to make when your money is involved. Whether you are one or the other is a matter of market sentiment. What goes up must come down and visa versa. As a result, the market moves up and down throughout the years. A lot of traders and investors look at sentiment. One example is the AAII bullish or bearish surveys that go out. I check these charts a couple times a month to see what investors are “feeling”. (Chart below)
Here is a chart of bullish sentiment as reported by investors. I check this on www.stockcharts.com often – just serach for AAII and pick bull or bear.
Another example some traders will look at CNN’s custom fear and greed index.
This is not the current level but a snap shot of the fear and greed index indicator that I check weekly. As of the third week in January 2020 – its currently at EXTREME GREED!
Truth be told, it’s very important to be able to define what constitutes a bullish vs bearish market. That way you can learn which strategies work best within each, respectively. You have to build a playbook if you are a trader or investor.
1. Which is Better?
Many people have opinions regarding bull and bear markets. Most investors and traders see a bull market as something that’s better than a bear market. That’s normal. Many traders and investors only know how to buy and sell stocks. Buy low, sell high. They don’t always know technical analysis or how to short stocks. Or even how to buy puts, or sell spreads. It could be something they are of afraid of doing! (Hey that’s understandable – some things that are unknown do appear scary!)
If you’re a long term investor reading this you’re probably nodding along.
Your goal is for the market to continue to move up so your investment portfolios do well. No one wants to sign into their Vanguard retirement account and see loss. Hence bear markets are generally perceived as a bad thing by the media, investors and the general public!
However, the ebb and flow of the bull vs bear is essential to a healthy stock market. While it may not seem like it, especially in the middle of a sell off, we need those corrections to keep us honest. Just make sure you have the right plan and protection for your investments.
It’s sort of like playing football. Offenses run both passing and running plays. They do those to keep a defense honest. If they only ever passed or only ever run the defense would always be able to stop them.
However, when you can fake the hand off, get the defense to bite and then complete a long pass you keep the defense second guessing.
Looking to learn stock market trading? Take our online trading courses to learn bullish vs bearish trading strategies.
2. What Do the Bulls Do?
Now that we’ve established that the bullish vs bearish battle is extremely important to a healthy functioning stock market, let’s talk about the bulls. The bulls are the buyers of market. Always there to buy the dip, average into a position, or “catch the knife”. They have a plan, and many plan to buy low and sell high and trade the trend. They know that overtime, stocks move up (good stocks anyway) and with a proper plan. they are walking away with profit. Stocks are currently in a Bull Market as of Mid January 2020.
Buyers drive prices higher. In a bull market, stocks continuously rise. As a result, prices are more expensive. Which means buying large cap stocks can be more difficult with small brokerage accounts.
The symbol of the bulls on wall street.
That being said, bull markets are great for retirement portfolios. Naturally, bullish trends are great to trade because of the ability to go long. It’s simple to go long, whereas going short (being a bear or bearish) is a lot more challenging.
Going long doesn’t mean holding long term. It’s taking the bullish play on a stock. You can day trade or swing trade a long play. Knowing which one is the best to do, depends on your skill set.
When a bull market is in full swing that means sentiments are optimistic. People are excited about the market. Maybe earnings are going up. Job numbers are good. GDP is good. Politically, things are good, and so on.
They can last for years at a time. Currently, we are in the middle of one of the longest bull runs in history. That doesn’t mean that stock prices never have down days. The trick is buying at support and selling at resistance. Sounds easy right? Read on.
Thankfully the bullish vs bearish battle happens no matter what trend is in place. Corrections allow the market and stocks to find equilibrium. As a result, the tug of war is never ending. There is always a “best entry” for your trade plan. Chasing an entry and being impatient tends to not work out so well (I speak from youthful ignorance and experience ha!)
3. What Part Do the Bears Play: Bullish vs Bearish
The bears can seem scary in the bullish vs bearish fight. That’s only because you see a lot of red in that trend. The panic selling can be scary if you are long, or are looking to buy the dip.
A bear market is in place once the market has sold off at least 20% of a couple month time period. Many times people don’t know a bear market happened until it’s over. They just don’t realize what is happening. Either because they are not following the charts, or because economic data tends to “lag”.
Speculators and talking heads will be talking about a bear market months before it starts, sometimes years. Guess what? Eventually they’ll be right, but how long will they be wrong for?
Prices fall because pessimism is in full control. A lot of investors don’t like to look at their portfolios. However, they can also see this is a sale to load up on more shares of their favorite value stock (Warren Buffet I am looking at you!)
The important thing is to only buy once a bottom has been found. Double bottom patterns are some of my favorite patterns. We also share stock alerts when we find the patterns we like.
4. Having Patience Is a Virtue (To Your Yield)
Being impatient and not waiting for an entry confirmation results in an entry that could be a loss as prices continue to fall. This is why support and resistance is so important. No matter what the market is doing, the bullish vs bearish battle must still adhere to support and resistance. We teach you how to do charting live in our trading service.
5. Candlesticks and Patterns
There are bullish vs bearish candlesticks as well as patterns. Candlesticks by themselves tell a story. However, when you group them together, they form patterns.
These patterns are categorized into continuation patterns or reversal patterns. There’s no magic formula that’s going to tell you exactly what a stock is going to do. However, patterns can give you a good idea.
Patterns form within patterns so there are times that patterns break down and don’t always do what you expected it to do. Hence the importance of being able to spot both the large and small patterns to plan your entry.
Candlesticks and patterns also form support and resistance. These levels are probably the most important thing to pay attention to in trading bullish vs bearish strategies because they are your first line of defense when trading or investing.
In fact, being able to see the bullish vs bearish candlesticks and patterns helps you know which trading strategy would work best in any given situation.
Take our basic stock trading course and study your but off if you want to learn how to profit in the market in 2020!
Do You Buy Bearish or Bullish?
- When going long a stock you are bullish. Shorting a stock means that you’re bearish. If you buy a call when trading options then you are bullish. Buying a put means that you are bearish on the stock.
1. Strategies: Bullish vs Bearish
As we have said, bullish vs bearish markets have different strategies. Buying in a bull market is pretty obvious and straight forward. It’s the bear market that can trip people up because you can make money as prices are falling, you can also lose if you short a stock and the price goes up (forcing you to “cover your loss”). More on that below.
Yes, short selling allows you to profit of of prices falling. You can short sell even in bull markets because of the tug of war between the bull vs bear.
When you believe a stock’s price is going to fall, you borrow shares from your broker and sell them short on the open market. Once your profit target has been hit ( the stock moves lower), you cover. Covering is known as buying those shares back. You keep the difference. That’s how you profit.
The shares revert back to your broker and you get to keep the difference in price form where you sold to where you covered. You can use this strategy without ever having to own shares of a stock. Kinda cool huh?
Options trading is another great strategy to employ in any market. The simple and advanced strategies let you make money no matter what the market is doing. Up, down or sideways, there’s a strategy you can use to turn a profit. We teach you peeps in our next level training library all the specific strategies using options to profit in any market.
2. Embrace the Light and the Dark Side
The bullish vs bearish battle will never change. As long as you learn the strategies to make money no matter who’s in control, you’ll be able to make a profit no matter what the market is doing.
When you first get started as a trader it’s important to pick one trading strategy and master it. Then as you become comfortable and master that specific strategy, start learning and implementing another one. Otherwise, you could be sitting on your hands not making money because you only know once trading strategy. I don’t know about you but to me that sound boring!
For instance, if you desire to swing trade then you ideally want to find a trending market. If you only trading shares in a bullish market then what are you going to do when the market goes bearish or trade sideways?
This is where options comes in and all of the different strategies that come with it. Iron condors are really great when the market trades sideways.
Or, how about penny stocks? Sometimes options might not have great setups but penny stocks are really running for a couple of days. If you know how to make intraday scalps then you can make money trading them while you’re waiting on the large caps to turnaround.
The more diverse that you become as a trader the better. Don’t rush the process that it takes to become a successful trader. Take it slow if you’re new and make sure to paper trade for several months before trading with real money. Then slowly scale your way up with real money while starting with small positions. Watch the video below for a quick summary on bullish vs bearish!
3. We’ll Teach You How to Be a Bear or a Bull
If this sounds like a lot or seems overwhelming, don’t worry. We’ve got you covered in our trading community. We have a diverse team that teaches the most popular trading strategies and we have a TON of resources available to help you along the way.
Our trade rooms are an interactive place to learn how to trade live. Our teach shows how to trade bullish and bearish markets. We teach penny stocks as well as the different options strategies.
They are a great place to learn and ask questions. Don’t be shy. We’re here to help you.
We also have $3,000 plus worth of free trading courses to help you get started. If you’re new then start off with our beginners courses then slowly work your way up to our advanced level courses. We even have “Next Level” content available for when you’re looking to take your trading to the next level.
4. The Daily Routine of the Bullish Bears
We do live streaming sessions daily from 9-11am and then 2-4pm. The hours in between are when traders typically go to lunch and you’re trading against computer algos. We try to deter traders from trading these hours because it can be very frustrating trading against computers.
We suggest having your paper trading account open when following along with us in our trading room. Practice trading what we’re showing you live in your virtual account. Get the feel of the flow of the markets. See how price action moves and track your wins and losses.
Be prepared to lose money, sometimes, there is always so loss with trading or investing. The best traders in the world only succeed between 60-70% of the time. They are successful because they know when to cut their losses quickly. Again, we’ll teach you all of this in our trading community. Thanks for reading our bullish vs bearish post and be sure to check our other content to sharpen your skills and master the markets!
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