Earning a profit in the bullish market is easier, as you can buy any stock or during the Future & Options Trading to get high returns. But how you can make profits in the bearish market, here you can do short selling but that might be risky.
Here you can opt for the bearish option strategies that will give a covered position in the market to generate profits in a bearish market. Using these option strategies for a bearish market you can earn significant profits even in falling markets.
Top 5 Best Option Strategies for Bearish Market
#1 The Bear Call Spread
In this strategy, you have to buy and sell a Call Option having the same underline assets and expiration date but a lower strike price. Here you have to pay the premium at the time of buying or selling the call option and you need to also pay when you trade a call option.
In this Bear Call Spread strategy, your capital cost is thereby significantly decreased, as the gap between both the premium paid and collected, the strategy is less harmful. This strategy is also known as bear call credit spread and is mainly used by the trader who thinks the price of the underlying asset might go down moderately soon.
#2 The Bear Put Spread
To apply this strategy you have to buy a higher side of the in-the-money put option, at the same time sell the put option of a lower side out of the money of the same stock of the same expiry period.
In this strategy, the maximum profits you will earn when the stock price decreases. This strategy comes with less risk factors but also profit is low.
#3The Bear Butterfly Spread
In this bearish market option strategy, you have to purchase the two calls in the middle strike price of at-the-money and simultaneously sell the call in the lower and upper strikes. Make sure the expiry date of all options must be the same.
Moreover, the distance from the lower and upper strikes that are wings of this spread must be equally distributed from the central strike (or body). In this strategy, you can earn the highest profit that will be achieved from the credit gained. While on the other hand, the maximum loss here is restricted to the net premium you paid at the time of buying.
#4 Bear Put Ladder Spread
This bearish option strategy is another variation of bear put spread in which you can earn profits out of a decrease in the price security. This strategy is preferably used when the price of a security is not expected to fall substantially.
However, trading with this strategy, if the stock price movement is going to the downside beyond your expectations, then losses are very high. On the other hand, profits are limited in this strategy, if the price of underlying assets drops between the strike prices of the put options.
#5 Bear Iron Condor Spread
This bearish option strategy is also known as “short” iron condor spread having the combination of four trade positions. Under this strategy of a bull put spread and a bear call spread, the strike price of the put sold is lower than that of the call sold.
And the expiry date of all them must be same. Here the maximum gain, you will earn is limited to the net credit of the premium received. While the maximum risk involved in this strategy is the difference between the bull put spread and the bear call spread after deducting the premium received.
#6 The Synthetic Put
This bearish options strategy consists of the long put option with the combination of selling the stock along with a buying call option with the same stock.
This is also known as a long synthetic put, in which you have to purchase an at-the-money call option of the stock you have created a short position. The main motive of this action is to safeguard the price of the stock from rising. Trading with this strategy in a bearish strategy, the profits would be unlimited while your risk is restricted to the strike price.
#7 The Strip Strategy
This is one of the best bearish option strategies for high volatility market. Under this negative market-biased strategy that is slightly different from the Long Straddle is one of the net debit for the traders.
Here you can buy Put and one additional lot, as this strategy is based on the bearish market. In this strategy, your profit is limitless, whereas, if the underlying asset's price is near the strike price of the Put and Call, that you bought, then that would be the maximum loss you have to bear.
Using any of them could be the best option strategy for a bearish market if the market or your stock price moves as per your expectations. These bearish option strategies will be highly effective and can give the maximum profits when the market falls and your taken positions option contracts move as per your expectations.
Though, trading in these bearish option strategies you have to make multiple positions in the different strike prices or different contracts of the same strike prices. But all these strategies will work or can give maximum returns when the market is bearish and the underlying stock or indices you make the position in contracts moves more on the downside.
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