Bullish Option Trading Strategies: Long Call and Short Put

Any experienced option trader in the market knows the only way to get success in this niche is having some good option trading strategies. But recently, option trading became a wider market with the introduction of internet option trading. More and more people are getting interested in this mode of investing. After getting preliminary idea of the trade, they are being interested in simple but good option trading strategies.

First of all, let’s get the idea of option trading little revised. Options are contracts that give the buyer of the contract the right but not the obligation to buy or sell, depending on the type of option, some stocks at a fixed price. The fixed price is called strike price. Options have a date of expiry and if the stocks are not bought or sold in this time, the options become worthless. Options are two types, call options, giving the right to buy stocks and put options, giving the right to sell stocks.

So, for the new traders, there are basically three types of option trading strategies,each having their own characteristics and application.They are Bullish, Bearish and Neutral. Bullish strategies are applicable when the prices of the underlying stocks are supposed to go up. Bearish strategies are the opposite, counting on the price to go down. Neutral strategies benefit from the price being stable.

Bearish strategies can be various types, including very complex ones. These strategies usually depend on buying call options or selling put options. They get benefited from the rise of the stock price. The simplest one is the long call option.

Long call option is buying a single call option. It has potential for unlimited profit with a minimum window for losses. This strategy is applicable when the trader strongly believes the prices will go up, and increase enough above the strike price to cover the price of the option and give them a good profit. In this strategy, the trader buys a call option at a specific strike price, often a little higher than the current market price of the stocks. Then, if everything goes as planned, the price of the stock increase and the trader buys the stocks at the strike price, sell them on current market price and pocket the difference. If something goes wrong, the trader does not buy the stocks and lose only the price they’ve paid for the options.

Short put option is selling a put option. It is much riskier than other option trading strategies. If the prices go down a lot, it can cause major losses. But if everything works out right, the priced go up the trader can make some major profits. If the option buyer is still interested in selling the stocks, the trader gets the stocks at the strike price as well as the price of the option. And if the option buyer doesn’t sell the stocks, the trader still gets the price of the option.

So, as we can see from these simple option trading strategies, a good knowledge is very necessary to decide which strategy to take. For new traders, it is hard to keep track of all the factors in the market. So, contacting licensed consulting firms and brokers is advised.

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