Studying the market outlook of any option and taking the best market position requires a deep understanding of how the underlying assets have performed in the past. Once you get an idea of the performance of these assets, only then you can implement suitable option trading ideas based on outlook.
In this article, you’ll get to know the different option trading ideas or strategies that you can use in different market conditions.
6 Option Trading Ideas Based on Outlook
The three different market outlooks are: neutral, bullish, or bearish. In a neutral outlook, the price of the underlying asset can remain the same or go in any direction. In a bullish view, the underlying asset’s price can go in an upward direction, and in a bearish one, prices can fall.
There is an option trading app India that allows you to directly deploy these strategies and they are as follows:
Neutral Outlook
1. Long & Short Strangles
In the long strangle strategy, you have to buy OTM (out-of-the-money) calls and puts and you can ensure unlimited profit potential in your investment bag. Also, all the calls and puts should have the same underlying asset, expiry date, and strike price.
In the short strangle strategy, you have to sell an OTM call and put option. The earning potential can only reach up to the net premium received by you.
2. Long & Short Straddles
You have to buy ATM (at-the-money) calls and puts in the long straddle strategy. All the options contracts should have the same underlying asset, expiry date, and strike price.
In the short straddle strategy, you have to sell ATM options. The earning potential can go up to the point of the net premium received from selling options contracts.
Bullish Outlook
1. Bull Call Spread
In this strategy, you have to buy one ATM call option and sell one OTM call option. Suppose that the price of the underlying stock rises then you can make a profit of the difference between the two calls strike prices and premiums. This profit potential also remains fixed to this point.
2. Bull Put Spread
In the bull put spread, the market outlook remains the same as the bull call spread but in this one, you have to buy puts instead of calls. You have to buy one OTM put and sell one in-the-money (ITM) put. If the price of underlying stock rises then you can make a profit equal to the difference of the two premiums.
Bearish Outlook
1. Bear Put Spread
You have to buy one ITM put option and sell one OTM put with the buy put having a higher strike price than the sell put. The profit is limited to the difference between the two puts’ strike prices and the net premium paid.
2. Bear Call Spread
In this option strategy, you have to buy one OTM call option and sell one ITM call. Suppose you buy X call and sell Y call, then X should have a higher strike price than Y, and the rest should be the same. The profit that you can earn is limited up to the point of the net premium received.
Conclusion
You can use six option trading ideas or strategies in the different market outlooks. In the neutral view, you can use long and short strangles and straddles. In a bullish outlook, you can use bull call and bull put. In the bearish one, you can use bear call and put.
You can get the readymade strategies for any options in the Dhan option trading app. It offers a seamless trading interface exclusively for F&O (futures and options) traders.
For a deeper dive into this compelling topic, check out the full article for invaluable insights and a comprehensive understanding.
