Synopsis Two simple and basic strategies to follow when the market outlook is bullish or when it is bearish Options trading has become the most favourite trading segment for retail investors of late.
However, most new retail investors who trade on options without much knowledge have consistently lost money due to their lack of understanding.
There are numerous strategies available in theory to restrict losses but not all are useful to a retail trader. For a beginner, here are the two simple basic strategies suggested by experts when the market outlook Options trading has become the most favourite trading segment for retail investors of late.
For a beginner, here are the two simple basic strategies suggested by experts when the market outlook is bullish, and when it is bearish If Reliance on expiry closes above 2, the strategy will start making profit. The only disadvantage this strategy has is the capped or limited profit.
In the first strategy, there is a possibility of unlimited profit whereas in the latter, the profit or loss is limited. So, for risk-averse traders, a bull call spread might be more meaningful, and for aggressive traders buying plain OTM options may be more worthy.
However, the disadvantage in this strategy is the capped or limited profit. Buying a put is a limited risk and unlimited reward strategy which requires only premium as an investment and has the highly bearish view, while bear put spread requires more margin comparatively and is a limited risk and limited reward strategy, which is usually done with negative to range-bound bias. Many times participants prefer to do bear put spread to avoid much losses due to time decay and to reduce break even points.
But retail participants usually opt for naked option buying as it has only single-leg execution and requires less investment which is easy to understand along with its non-linear payoff.