Six Main Directional Outlooks in Options Trading

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All contents and information presented here in optiontradingpedia. We have a comprehensive system to detect plagiarism and will take legal action against any individuals, websites or companies involved. Investors typically buy when the outlook is bullish and sell or short when the outlook is bearish.

Indeed, almost every investor know that the price of an asset either goes up, down or sideways and invest or trade according to that outlook. However, in options trading, there are actually as many as Six different directional outlooks that one can make in order to truly select moderately bullish binary options strategy correct options strategy to use and optimise profits.

This tutorial will explore all Six main directional outlooks in options trading and the corresponding options strategies for each outlook. Six Main Directional Outlooks in Options Trading - Content Overview Neutral Volatile Moderately Bullish Sustained Bullish Moderately Bearish Sustained Bearish Six Main Directional Outlooks in Options Trading - Overview Due to the versatility and fine degree of price targeting that can be achieved using options strategiesoptions traders typically adopt up to 6 different directional outlook on the underlying asset rather than just the basic 3 that most traders are concerned about.

Indeed, options trading is a trading method that rewards precision and accuracy. The more precise you can be about your outlook, the better you can optimize your profits and minimize potential losses. In stocks trading, there is no way to profit if a stock is expected to remain stagnant except through dividends.

However, in options trading, there are literally tens of ways to profit from a neutral outlook depending on the expected state of neutrality of the underlying asset. Options strategies designed to profit from a neutral stock is collectively known as "Neutral Options Strategies".

Neutral in options trading moderately bullish binary options strategy not mean that the price of the underlying stock being completely still or stagnant for an extended period of time. No, that kind of situation is almost impossible as asset prices are changing every single minute. A neutral outlook in options trading simply mean expecting the price of the underlying asset to move within a horizontal price range.

The more precise and accurate you can be with the width of that price range, the better you can be at optimizing profits through the use of the correct neutral options strategy suitable for that kind of price range. When you expect the price of the underlying stock to remain neutral within an extremely tight price range, you are expecting a "Tight Neutral" trend.

An example of how the expected neutral price range can affect your choice of neutral options moderately bullish binary options strategy is the consideration behind the use of a Butterfly Spread or Condor Spreadboth neutral options strategies.

If you are sure that the price of the underlying asset is going to remain almost completely still Tight neutral trendthe Butterfly Spread would better optimize your profitability than a Condor Spread. Read the full tutorial on Neutral Options Strategies. Volatile means profiting no matter if the price of the underlying stock breaks out to upside or downside. Volatile options strategies are options strategies designed to profit under such conditions of uncertainty and are commonly used ahead of major news or earnings releases in order to profit from either direction depending moderately bullish binary options strategy how the release turn out.

Not only are volatile options strategies used for speculating in an uncertain price breakout but they can also be used to speculate on a property unique to options trading; Moderately bullish binary options strategy Volatility. Implied volatility is the volatility expectation of the underlying stock reflected in the extrinsic value of its options.

Extrinsic values rise as implied volatility increases and drops as implied volatility decreases. Options traders using volatile options strategies are able to profit from such rise and fall of implied volatility without any movement in the price of the underlying stock at all!

Read the full tutorial on Volatile Options Strategies. Being moderately bullish means that you expect the price of the underlying stock to increase to a certain pre-determined price instead of being bullish for an unknown extended period of time to an unknown high price.

When you are moderately bullish, you would apply what are known as "Limited Profit" Bullish Options Strategies. As such, the term "moderately" here actually means having a set price target versus expecting moderately bullish binary options strategy price to keep rising with no limits you would make a much better rate of return using a limited profit bullish options strategy than an unlimited profit bullish options strategy designed for sustained rallies.

Moderately bullish binary options strategy are two kinds of limited profit bullish options strategies for use when you have a moderately bullish outlook; Limited Risk Limited Profit and Unlimited Risk Limited Profit. Bullish options strategies with limited risk and limited moderately bullish binary options strategy are typically debit spread strategies that profit only if the price of the underlying stock rises beyond a certain breakeven point. However, bullish options strategies with unlimited risk and moderately bullish binary options strategy profit are typically credit strategies that profit not moderately bullish binary options strategy when the price of the underlying stock rises but typically also when the price of the underlying stock remains stagnant!

Yes, two directions at the same time with the drawback of having an unlimited risk potential of course, nothing is perfect moderately bullish binary options strategy options trading.

Six Main Directional Outlooks in Options Trading - Sustained Bullish Sustained bullish is when you expect the price of a stock to move higher perpetually. There are stocks such as gold based funds that generally do well over a long period of time and when you expect a stock to rise without any predetermined price limit, usually for the mid to long term, you would moderately bullish binary options strategy what are known as "Unlimited Profit" Bullish options strategies.

Unlimited profit strategies mean that the value of the options position will rise as long as the price of the underlying stock keep rising. The simplest of unlimited profit bullish options strategies would be of course the Long Call strategy where you simply buy a longer term call option and hold on to it. The challenge when you have a sustained bullish outlook on a stock is usually which expiration month to buy the options on.

Of course the sensible thing to do would be to buy as far out as you expect the price of the underlying stock to rally for.

Sometimes you may expect an explosive move within the next month with no set target to topside. In this case, you could also use an unlimited profit bullish options strategy on the nearest expiration moderately bullish binary options strategy to profit from it. As such, sustained bullish outlook also applies when you expect an extremely strong short term bullish move with no set topside price target.

Being moderately bearish means that you expect the price of the underlying stock to decrease to a certain pre-determined price instead of being bearish for an unknown extended period of time to an unknown lower price. When you are moderately bearish, you would apply what are known as "Limited Profit" Bearish Options Strategies.

As such, the term "moderately" here actually means having a set price target versus expecting the price to keep dropping with no limits you would make a much better rate of return using a limited profit bearish options strategy than an unlimited profit bearish options strategy designed for sustained declines.

There are two kinds of limited profit bearish options strategies for use when you have a moderately bearish outlook; Limited Risk Limited Profit and Unlimited Risk Limited Profit. Bearish options strategies with limited risk and limited profit are typically debit spread strategies that profit only if the price of the underlying stock drops beyond a certain breakeven point. However, bearish options strategies with unlimited risk and limited profit are typically credit strategies that profit not only when the price of the underlying stock drops but typically also when the price of the underlying stock remains stagnant!

Six Main Directional Outlooks in Options Trading - Sustained Bearish Sustained bearish is when you expect the price of a moderately bullish binary options strategy to move lower perpetually. When you expect the price of a stock to drop without any predetermined price limit, usually for the mid to long term, you would apply what are known as "Unlimited Profit" Bearish options strategies.

Unlimited profit bearish options strategies mean that the value of the options position will rise as long as the price of the underlying stock keep dropping. The simplest of unlimited profit bearish options strategies would be of course the Long Put strategy where you simply buy a longer term put option and hold on to it.

Of course, unlike a rally where there is no limit to how high the price of a stock can rise to, the price of a stock can only drop to zero. As such, there is technically a limit to how low a stock can drop even though you may hold a "Sustained Bearish" outlook.

Like the sustained bullish outlook, the challenge when you have a sustained bearish outlook on a stock is usually which expiration month to buy the put options on. Of course the sensible thing to do would be to buy as far out as you expect the price of the underlying stock to drop for. Sometimes you may expect an explosive move within the next month with moderately bullish binary options strategy set target to downside.

In this case, you could also use an unlimited profit bearish options strategy on the nearest expiration month to profit from it. Moderately bullish binary options strategy such, sustained bearish outlook also applies when you expect an extremely strong short term bearish move with no set downside price target. Try our Option Strategy Selector!

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Bullish options trading strategies are strategies that are suitable for when you expect the price of an underlying security to rise. The obvious, and most straightforward, way to profit from a rising price using options is to simply buy calls. However, buying calls options isn't necessarily the best way to make a return from a moderate upwards price movement and doing so offers no protection should the underlying security fall in price or not move at all. By using strategies other than simply buying calls, it's possible to gain some notable advantages.

On this page, we look at some of the advantages of using such strategies, as well as the disadvantages. It also provide a list of the most commonly used ones. Buying calls is a strategy in its own right, and there are certainly circumstances when a simple purchase of calls is a viable trade.

There are downsides of buying calls too though. For one thing, you run the risk that the contract you buy will expire worthless and generate you no return at all, meaning you lose your entire investment.

You'll always be subject to the negative effects of time decay, and you will probably need the price of the underlying security to rise reasonably significantly in order to make any profit. It is, however, possible to avoid some of those downsides by taking alternative approaches. Each bullish trading strategy comes with its own unique characteristics, and you can select a strategy that is most likely to help you achieve whatever it is you are aiming for.

For example, you could use one that reduces the cost of buying calls by also writing calls with a higher strike. This could also help you reduce the negative effect of time decay on your position, something you could also do by using a strategy that involved the writing of puts.

Another advantage is that you can create credit spreads, which return an upfront payment, rather than debit spreads which carry an upfront cost. The main point is that by using bullish trading strategies, you can enter a position that profits from an increase in the price of the underlying security and also control other factors that may be important to you, such as the level of risk involved or the amount of capital required.

Using strategies other than a straightforward purchase of call options isn't without disadvantages though. With pretty much any form of investment, if you want to gain extra benefits from your approach, then you have to sacrifice something in return. The same is true for options trading. The main advantage of buying calls is that your profits are theoretically unlimited, because you continue to profit the more the price of the underlying security rises.

The biggest sacrifice that you make with most bullish trading strategies is that the potential profits you can make are limited to a certain amount. However, given that most options trades are based on relatively short term price movements, and financial instruments don't frequently move in price by huge amounts; this isn't necessarily a major drawback.

Another disadvantage is the added complication of trying to choose the right strategy. The concept of buying calls is by itself relatively simple. If you think a financial instrument is going to increase in price, then you can benefit from that increase with a straightforward transaction. Complicating matters by trying to maximize your potential profits or limit your potential losses obviously involves more time and effort. You'll typically pay higher commissions too, because most strategies require multiple transactions to create spreads.

However, overall you are far more likely to be consistently successful when trading options if you get to know all about the different trading strategies and learn which ones to use and when. The following is a list of the most commonly used strategies that are appropriate for a bullish outlook.

We have included some brief information about each one, including how many transactions are involved, whether a debit or credit spread is created and whether or not the it's suitable for a beginner. For more detailed information on each strategy, such as how to use it, its advantages, and it's disadvantages, simply click on the relevant link.

For more assistance in choosing a suitable trading strategy you may like to use our Selection Tool for Options Trading Strategies. This is a single position strategy that involves only one transaction. It's suitable for beginners and comes with an upfront cost. Only one transaction is required for this, and it produces an upfront credit.

It isn't suitable for beginners. This is a simple strategy suitable for beginners. It involves two transactions to create a debit spread. This is straightforward but it's not really suitable for beginners because of the trading level required. A credit spread is created using two transactions.

This is complex and requires two transactions; as such it isn't suitable for beginners. It can create either a debit spread or credit spread, depending on the ratio of options bought to options written. Short Bull Ratio Spread. This relatively complicated trading strategy isn't ideal for beginners. Two transactions are involved, and a credit spread is created. There are two types of bull butterfly spread: It's a complex trading strategy, requiring three transactions, that creates a debit spread.

There are two types of bull condor spread: This strategy requires four transactions and it's not suitable for beginners. It creates a debit spread. Bull Call Ladder Spread. This is a complex trading strategy requiring three transactions. It creates a debit spread and it's not suitable for beginners. Bullish Options Trading Strategies Bullish options trading strategies are strategies that are suitable for when you expect the price of an underlying security to rise.

Section Contents Quick Links. Why Use Bullish Strategies? Disadvantages Using strategies other than a straightforward purchase of call options isn't without disadvantages though. List of Bullish Options Trading Strategies The following is a list of the most commonly used strategies that are appropriate for a bullish outlook. Long Call This is a single position strategy that involves only one transaction. Short Put Only one transaction is required for this, and it produces an upfront credit.

Bull Call Spread This is a simple strategy suitable for beginners. Bull Put Spread This is straightforward but it's not really suitable for beginners because of the trading level required. Bull Ratio Spread This is complex and requires two transactions; as such it isn't suitable for beginners.

Short Bull Ratio Spread This relatively complicated trading strategy isn't ideal for beginners. Bull Butterfly Spread There are two types of bull butterfly spread: Bull Condor Spread There are two types of bull condor spread: Bull Call Ladder Spread This is a complex trading strategy requiring three transactions. Read Review Visit Broker.