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Trading Option: Bullish Trading Strategies

options strategiesAre you trading option? If so, there are various strategies you can use to improve your odds of getting a positive ROI. Below are three bullish trading options you can use:

Note: To successful apply any of the three strategies below, you will first need to sign up with one of the best online stock brokers in the market.

Call Spread

Bull Call Spread – Buy ATM (lower strike price) Call and sell OTM (higher strike price) Call with 45 days or greater until same expiration date in moderately Bullish markets that are trending up.

Entry Rules
Bullish expectations for the underlying asset.
Pay no more than $2 for a $5 spread, and $4 for a $10 spread, including commissions.

Exit Rules
– Close position if it falls to 60% of purchase price.
– Close position 30 days to expiration.
– Evaluate position at 90-100% profit.
If you are still Bullish, close 50% of position to take your money off the table.
Close out the remainder of position at 75% – 80% of maximum spread.

Profit & Loss Calculations
Maximum Risk – Limited to the net debit paid for the spread
Maximum Profit – Limited to difference in strike prices – net debit paid
Breakeven – Lower Call strike price + net debit paid

Buy Call Option

Long Call – Buy Calls in a Bullish market with at least 45 day until expiration.

Entry Rules
Bullish expectations for the underlying asset.
Low Implied Volatility resulting in cheap options.

Exit Rules
– Close position if it falls to 60% of purchase price.
– Close position 30 days to expiration.
– Evaluate position at 100% profit.
If you are still Bullish, close 50% of position to take your money off the table.
Use these exit rules again, but adjust your ‘purchase price’ to the current price.
This assures that you don’t give back all of your profit.
Otherwise, close your entire position.

Profit & Loss Calculations
Maximum Risk – Limited to the premium paid for the Call
Maximum Profit – Unlimited as the price of the stock rises above the break even
Breakeven – Call strike price + Call option premium

Bull Call Diagonal Spread

The Bull Call Diagonal Spread is a low risk options trading strategy that can be used when your analysis indicates that the price of a stock, ETF, index, or commodity futures contract has strong probability of going steadily higher over the next several months.

This option strategy is a debit spread which is a combination of a Bull Call Spread and a Call Calendar Spread. This is a good trade to do with LEAPS in combination with short-term options. This trade can be done in two ways depending on how aggressive you want to be.

In the conservative strategy, buy an ITM (lower strike price) Call with 60 days or greater to expiration, and sell an OTM (higher strike price) Call with at least 30 days until expiration and at most 30 days less until expiration than the purchased Call.

In the aggressive strategy buy an ATM (lower strike price) Call with 60 days or greater to expiration, and sell an OTM (higher strike price) Call with at least 30 days until expiration and at most 30 days less until expiration than the purchased Call.

Entry Rules
You have bullish expectations for the underlying asset but you don’t expect the asset price to rise too quickly. Pay no more than $4 for a $5 spread, and $8 for a $10 spread, including commissions. The Implied Volatility of the sold Call should be at least 10% greater than the IV of the purchased Call.

Exit Rule Insights
– Cut your losses short. Sell the position anytime the price of the spread falls to 60% of your purchase price.

– Hold position until expiration week of the sold option.If the stock price is greater than the strike price of the sold Call option, you have two choices:

– Exercise your purchased Call option to cover your sold option being called if you are assigned, and take your profit; or

– Close your position for a profit; or

– Roll forward to the next month – buy back the Call option you sold and sell the next month’s Call option at the same or higher strike price depending on the Call option prices and your outlook for the underlying asset.

If the asset price is less than the strike price of the sold Call option, it will expire worthless. Sell the next month’s OTM (higher strike price) option on the Monday following expiration.

If the option you purchased is entering its final month before expiration, close the position, or keep the Call or convert to a Bull Call Spread depending on your outlook for the underlying asset.

Profit & Loss Calculations for Call Diagonal Spread

Maximum Risk – Limited to the net debit paid for the spread

Maximum Profit – Limited to difference in strike prices – net debit paid

Breakeven – Lower Call strike price + net debit paid

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