Options Trading Strategies - Basic Bearish Strategies to Use

In a market dominated by fear, the use of well-established options trading strategies is a must. Traders are always recommended to develop their own unique style of trading in order to secure higher profits and minimize risk. This is important, indeed. However, you cannot use effectively any creativity and forward thinking if you do not know the basics, especially when the market is bearish, which is relatively common these days.

Long put is one of the simplest options trading strategies. It is all about the purchase of a put option. The idea behind this tactic is quite obvious indeed. You buy the derivative at the time when the market is bearish and wait for the right time to sell it when things turn around. Of course, you cannot use this tactic just because you are hoping that the market will go up. You have to expect bullish market in terms of volatility in order to make this strategy work. Basically, you have to rely on adequate technical and fundamental analysis.

Short call or naked call is one of the main bearish options trading strategies to use. It involves the sale of a single call option. This tactic involves the risk of an unlimited loss if the market rises. At the same time, the profit, as you can guess, is restricted to the premium you will earn from the sale. Given all this, it is crucial to use this tactic at the right time in order to make it work. This is the strategy you need when the market is bearish both in terms of direction and in terms of volatility.

Call bear spread is one of the more complex options trading strategies. It is about short selling one call option and longing one call option with a greater strike price. That way, the risk of loss is limited to the difference between the higher and the lower price minus the net premium that you get. The maximum profit potential is not particularly large. It is equal to the premium of the position. This is a generally non-risky strategy that you can use to gain stability in a market that is on a mildly bearish direction.

Put bear spread is another one of the options trading strategies that you can use when the market direction is bearish. It involves the short selling of one put option at a smaller strike price and the longing of another put option at a greater strike price. Again, the loss potential and profit potential of the tactic are limited and you get the same benefits as with the call bear spread tactic.

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