What are Bullish Options Strategies?

Bullish options strategies are methods that are employed during bull markets. When investors are confident that the market or a particular stock will rise, they use bullish options strategies. Investors often consider the support and resistance levels while making the strategy. However, you could lose a lot of money if the market or the stock moves against your prediction. Let’s learn what is a bullish options strategy in this article.

Understanding Bullish Options Meaning

When the overall market's price growth is moderate, traders will use a bull call spread. Two call options are combined to produce a range. They include one with a lower strike price and the other with a higher strike price. This strategy protects you from losses even though it restricts your earnings. If traders buy a primary call option at a premium, they can profit from rising stock prices. The strike price and the security's existing price are used to calculate the premium. If the strike and existing prices are equal, the premium will be high.

If the price increases, you may exercise the right to purchase shares at the strike price. However, you will only lose the premium amount if the price drops or doesn’t change. Note that the benefit from a price increase may not be significant if the premium price is higher. The broker will also levy charges. Purchasing a call option will restrict your potential profit from the transaction until the stock price rises above the break-even point. The strike price plus premium determines a stock's break-even point.

Types of Bullish Option Trading Strategies

There are many types of bullish-on-stock strategies. Some of them are as follows:

• Buy Call Options

You get the right to purchase one or more lots of the underlying assets at a predefined price (referred to as the strike price) on or before the designated date if you own a call option. You benefit if the asset moves into the at-the-money on the contract expiration date. The premium required to buy the call option is the sole risk involved with this strategy.

• Bullish Spread Option price

The bull call spread is another name for the bullish spread options strategy. You might use this strategy when you are positive but not quite confident that the market will rise. Buying an in-the-money call option and selling an out-of-the-money call option with the same expiration date are the two steps of this technique. You receive the premium when you sell a call option, which you then spend to purchase the call option. This approach typically yields low profits. However, the losses will also be less.

• Bull Ratio Spread

The bull ratio spread is an extremely profitable options strategy. However, it works better for seasoned investors. Using this option strategy, you purchase calls in a ratio and sell calls in another. In this case, the sell call quantity exceeds the buy quantity. You can obtain capital gains even if the price drops or there is no movement in the underlying asset before the expiration date. So, it is quite profitable.

• Bull Call Butterfly Spread

For a bullish market, the bull butterfly spread is a limited profit, limited loss options strategy. Given that you must purchase or sell three options, this technique is sometimes referred to as the bullish call spread option strategy. The strategy involves forecasting the price of the underlying asset on the contract expiration date, purchasing one low-strike call, selling two high-strike calls, and purchasing one high-strike call. You can't buy and sell calls that have different expiration dates. Maximum profits can be realised if the price of the underlying asset is close to the strike price of the sell call.

• Bull Condor Spread

One of the simplest and most advanced bullish options techniques you may use to turn a profit is the bull condor spread. Four transactions must be made in order to maximise profit and minimise the chances of a loss in this technique. You have to assess the underlying asset, project a range, and select the expiration date. One low-strike call and one high-strike call are then sold, and one low-strike call and one high-strike call are purchased. Both the maximum losses and the maximum earnings in this approach are specified.

• Bull Call Ladder Spread

It occurs when you purchase one call and concurrently write two calls with distinct strikes. To increase their profit, traders could also enter a leg by trading the call options at various periods.

Conclusion

It's standard practice to use option techniques in a bull market, but there are certain drawbacks. Using a plan to reduce your risk also reduces the profit margin that increasing asset prices might provide you. It also includes the challenges of selecting the appropriate strategy and asset. Finally, you should consider the associated expenses. The majority of techniques involve multiple trades. Thus, you will ultimately have to pay the broker a larger fee percentage.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.

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