Bullish Option Strategy
A bullish options strategy can be an effective way to increase your investment profits while reducing the amount of risk at any given time. An investor expects the price of the underlying asset to rise over time and pays a premium to purchase the right to buy or sell that asset at an agreed-upon price within a certain time frame. Because this investment approach aims to make money if the underlying stock’s price goes up, it’s considered bullish.
The goal of a bullish option strategy is to profit from an increase in the underlying stock price without actually buying the stock since it might be overvalued at the time you’re reading this article. In other words, if you had purchased stock in XYZ company when it was valued at Rs. 300 per share, but then the value went up to Rs. 500 per share within a few months, you could still earn profits on your investment even though your shares are no longer worth as much as they were original.
Types of Bullish Options Strategy
There are several types of bull options strategies, and each one has its unique way of making profits. One common example is known as buying an in-the-money call option. In general, if you buy a call with a strike price that’s lower than where shares of stock are currently trading, then you have a long position in that Option.
This means your goal is to have the share prices go up so that when you exercise your right to buy them at a set price while you make a healthy profit. This would be considered a bull options strategy because share prices need to move higher for you to profit from exercising your contract.
Another type of bullish strategy involves selling covered calls on shares that are currently owned by investors. A covered call involves holding onto stocks while also selling contracts on those stocks at predetermined rates. If someone exercises their right to purchase those stocks from you, they will pay upfront for them regardless of how high or low prices may move over time.
Covered calls involve using these types of bull strategy options to help offset potential short-term losses that could occur due to fluctuations in share prices. Investors that hold onto stocks might incur significant losses if market conditions take a turn for the worse.
However, sellers of covered calls are protected against losses because if shares fall below a certain point before the expiration date, investors won’t exercise their rights to purchase stock from them since it would end up being more expensive to do so.
This strategy works both ways. However, if there was ever an instance where share prices rose above striking prices during an investor’s holding period, he or she wouldn’t get paid out since there was no agreement between parties stating otherwise.
Examples of bullish options strategy
Consider stock ABC is currently trading at Rs. 100 per share. You decide to create a bullish strategy around ABC because you believe the stock will appreciate quickly. So, you sell 100 shares of ABC for Rs.10 each (or Rs.1,000 total).
Then, three months later, the price of ABC jumped up to Rs.150 per share. You go out and repurchase those same 100 shares for Rs.8 each (Rs.800 total). Thus, you’ve made Rs. 200 off your original investment of Rs. 1,000. Your return would be 20% (Rs.200 / Rs.1,000 = 0.2). Traders tend to initiate such strategies when they think an asset is trading upward rather than downward.
If you’re looking to take advantage of rising stock prices, you should consider investing in one of these bullish options strategies. It’s also important to remember that in options trading your risk and return potential will be proportional to the capital invested. The higher your investment, and thus your leverage ratio, the greater your possible rewards and losses will be.
Frequently Asked Questions Expand All
When used in the right manner, bullish options strategies can be a powerful tool in trading. There are two basic ways to use it: owning calls or puts outright or using combination spreads that consist entirely of call and put options. It’s important to remember, however, that no matter how aggressive your bet is there’s always risk involved. If an out-of-the-money option costs around Rs.1 per contract then try not to spend more than 10% of your account value purchasing one.
Bull strategy options involve buying calls or put options to profit from an upward move in an underlying asset. This means that you buy, rather than sell, options. There are several different types of bullish options strategies, including long calls and long puts.
A long call is when you buy a call, which gives you the right but not obligation to purchase 100 shares of an underlying stock at strike price A by expiration date B. The long put works in exactly the same way with different strike prices and expiration dates. If you’re bullish on an asset (such as stock) then one of these options might be worth considering; it gives you exposure to any upward movement without actually owning any of the stock itself.