BEARISH Market Option Trading Strategies

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Old 12th August 2004, 10:11 AM
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Default BEARISH Market Option Trading Strategies



BEARISH Market Option Trading Strategies

Key Points to Remember:

Bearish Market Strategies work best only in strongly trending bearish markets.
ALL options eventually lose ALL of their "time value."
ALL "Out-Of-The-Money" options expire worthless.
Markets only "trend" 1/3 of the time; they move sideways the other 2/3.

I have arranged the four bearish option market strategies as follows:

Option Strategy
Description
Reason to use
When to use


Buy a Put
Strongest bearish option position.
Loss limited to premium paid.
Undervalued option with increasing volatility.

Sell a Call
Neutral bearish option position.
Profit limited to premium received.
Option overvalued, market flat to bearish.

Buy Vertical Bear Put Spread
Buy at the money Put & sell out of the money Put.
Loss limited to debit.
Small debit, bearish market.

Sell Vertical Bull Call Spread
Sell Call & buy Call of higher strike price.
Loss limited to strike price difference minus credit.
Large credit, bearish market.


Last edited by TradingPicks : 12th August 2004 at 10:17 AM.
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