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Bullish Options Strategies: Summary
Bullish Options Strategies - Introduction
So, you wish to make a leveraged profit using a small investment when a stock goes up?
How about making a profit BOTH when the stock goes up and sideways?
Bullish Options Strategies are the answer! Bullish Options Strategies are certainly the most common starting point for options trading beginners. This is because bullish options strategies aim to profit when the underlying stocks goes up, which is something very familar to stock traders turned options traders.
Doesn't profiting from an upwards stock movement involve only buying call options?
Yes, buying call options is definitely the simplest of bullish options strategies but stock options, being the most versatile trading instrument in the world today, offers more than just that. A combination of different options can allow you to not only profit when the underlying stock goes up, but also limit your losses, lower your initial outlay, increase your chances of profit and even profit when the underlying stock remains stagnant. These are what is collectively known as bullish options strategies.
This tutorial will explore the underlying mechanisms of bullish options strategies, why they work and also give you a full list of bullish options strategies.
Bullish Options Strategies - Content
More Than Just Call Options | Debit & Credit | Lower Initial Outlay | Time Decay | List of Bullish Options Strategies
Bullish Options Strategies - More Than Just Call Options Buying
Buying call options is the simplest of all bullish options strategies and is certainly the most easily understood for options trading beginners. If the stock goes up above the strike price, the option ends up in a profit and if the stock goes below the strike price by expiration, the option expires worthless and you lose nothing more than the money you put into the purchase. Very straight forward. However, the main problem with buying call options is that the premium or extrinsic value of the option raises the breakeven point of the trade, so options traders start putting other options together with call options in order to overcome the extrinsic value. They do so by SHORTING or writing options on top of the call options. It is this combination of buying and shorting options that creates bullish options strategies. It not only overcomes extrinsic value to the extend of ending up with a credit but also produces some pretty amazing options trading risk profiles.
Bullish Options Strategies - Debit & Credit
There are two broad categories of bullish options strategies; Debit Strategies and Credit Strategies. Debit Bullish Options Strategies are bullish options strategies which you need to pay cash for. These are bullish options strategies that may have incorporated short options but does not cover the premium paid for the long options entirely. Credit Bullish Options Strategies are bullish options strategies that credits your account with cash when the position is put on. These are bullish options strategies that are made commonly by shorting put options instead of buying call options in order to profit from time decay as well. An example of credit bullish options strategy is the Bull Put Spread where Put options are used instead of call options. Credit bullish options strategies certainly increases the odds of winning since it puts time decay in your favor but it limits the maximum options trading profit that can be made.
Bullish Options Strategies - Lowering Initial Outlay
One main reason for the development of Bullish Options Strategies is the need to lower capital outlay when buying call options. The lower one pays for a call option position, the higher the ROI one makes from the same move, right? Bullish options strategies does that primarily by shorting or writing out of the money call options on top of buying the at the money or in the money call options. As long as the stock does not move higher than the strike price of the out of the money call options, the premium earned from selling those call options partially offset the higher cost of the at the money or in the money call options, lowering the inital capital outlay of the position. An example of this is the Bull Call Spread.
Bullish Options Strategies - Profiting From Time Decay
Bullish options strategies are not only capable of producing a profit only when the underlying stock goes up but also when the underlying stock remains stagnant through time decay. Bullish options strategies put time decay in your favor through the use of short put options instead of long call options. Short put options profit as long as the underlying stock closes higher than its strike price during expiration but has a limited profit and unlimited risk potential. The most direct example of such a bullish options trading strategy is obviously the Naked Put Write options trading strategy. The problem with such bullish options strategies is the high margin deposit requirement of most options trading brokers and that is why other options are also combined with short put options to produce credit bullish options strategies with lower margin requirements.
Bullish Options Strategies - The Trade-off
Options trading is all about trade-offs. Utilizing bullish options strategies other than simply buying call options normally limits the maximum profit that you can make when the underlying stock goes up indefinitely. This is the price you pay for having all the other benefits that these more complex bullish options strategies grant.
List of Bullish Options Strategies
Here is a list of Bullish Options Strategies classified according to their relative complexity in options trading. Complex Bullish Strategies are usually credit bullish options strategies that require a high account margin.