Best Option Strategy for Bull Market before Election: 7 Bullish Strategies

Learn Team
April 26, 2024

Though, in a bullish market you can bet on stocks in a spot market that can give you returns. While in option trading you can get a better return with the same movement in the spot market. But you have to trade or create your trading position in the options market with the right strategy.

And there are various option trading strategies you can use in trading for the market running in the bullish phase. In fact, these strategies will work only when the market is in the upward direction. And if the market is in your favour and you have a well-executed strategy, then you can get good returns. Hence, we brought here the best option strategy for the bull market.

7 Best Bullish Options Strategy

#1 Bull Call Spread Option Strategy

Bull Call Spread is among the most common and a very popular bullish option strategy. In this strategy a trader has to buy an lower strike price in-the-money (ITM) call option and sell an higher strike out of money (OTM) call option of the underlying security and expiration date.

You get the premium on selling the call option, while pay the premium to buy the call option. This option strategy is set up for net cost and profits as the price of the underlying security increases. Hence, the profit ad and loss in this bullish option strategy is less than the buy call option.

Also Read : Options Trading for Beginners

The profit is limited, if the underlying security price rises above the strike price of the short call and loss is also limited, if the underlying security price goes below the strike price of the lower strike price.

If the stock price rises above the strike price of the short call, profit is limited, and potential loss is limited if the stock price falls below the strike price of the long call (lower strike). Here in this bullish option strategy, the maximum risk is equal to the spread cost and the commissions. If you hold this trade option till the date of expiry, both calls will expire worthless.

#2 Bull Put Spread Option Strategy

This bullish option strategy consists of selling a put option and at the same time buys another put option with the same expiration date but with a lower strike price. It is a vertically spread option strategy, bull, bear calls spread and bear put spread.

In this option strategy you will receive a premium of the selling the put option that is always higher than the premium you receive for the buying the put. This implies that, getting the upfront payment or credit is needed to start this strategy.

Also Read: Best Option Strategy for Bearish Market: 7 Option Strategies

While the potential profit is limited to the net premium you get minus commission and you will realise this profit if the underlying security price goes above the strike price of the high strike price on the date of expiry and both puts expires worthless.

The highest risk involved in this strategy is the difference between the strike prices less the net credit received with the commission or brokerage charges.

#3 Call Ratio Back Spread Option Strategy

You can also use the call ratio back spread as the option strategy for the bullish market with limited losses with the expectation that underlying stock will rise significantly. In this option strategy, you have to buy two calls and sell one call at a different strike but with the same expiration date.

The loss is limited due to two long calls, while there is a risk of unlimited gains. And the highest loss you can incur trading with an options strategy is when the underlying stock price touches, the strike price of the higher long call at the time of options expiry.

#4 Synthetic Call for Bullish Option Strategy

If you have an optimistic outlook towards a stock, you can utilise the synthetic long call strategy and buy a stock. But what will you do if the price falls, here you need to have some protection from price decline. Hence, you can buy a stock, and now you have the option to sell the stock at the strike price.

The strike price can be somewhat above at-the-money strike price or below the price you paid for the stock out-of-the-money strike price. Here the losses are limited to the stock price plus put premium minus put strike price, while the profit potential is unlimited when this strategy.

With the physical delivery of stock, you will be also entitled to get the dividend and voting rights for the shareholders of the company. If you buy a call, you cannot enjoy the dividends and voting rights that would not be available to such stakeholders.

#5 Bull Butterfly Spread Option Strategy

This bullish option strategy has limited profit and limited loss and is best suitable for the bullish market. In this option strategy you have to buy and sell three calls. Yes, in bull butterfly spread option strategy you have to buy one call option at a lower strike price and sell the two calls at the higher strike price and also buy a one call at a high strike price.

Make sure strike prices are well-spaced and the call has the same expiration date. In this option strategy, the risk is limited to the net premium paid, while the maximum profit potential is when the stock price is equal to the strike price of the calls sold (centre strike) at expiration. This profit is the difference between the lowest and middle strike prices minus the net cost of the position.

#6 Bull Condor Spread Option Strategy

This option strategy consists of buying and selling call and put option. Implementation of this strategy goes like this; trader have to sell a put at a lower strike price and buy a put option of a lower middle strike price, buy a call of a higher middle strike and sell a call of a higher strike price.

Make sure each transaction is of the same underlying security and have the same expiration date. And the maximum loss is limited to the amount of the net premium paid. While profit is equal to the lower-middle strike price-lower strike price-net premium paid.

You can apply this bullish option strategy to minimize the cost that is upfront and optimize profit if you are confident that security prices will go upwards up your expected levels.

#7 Bull Call Ladder Spread Option Strategy

This bullish option strategy will give you profit when the price of underlying security increases. It is just like the bull call spread that works best when you expect the price of security will rise but not radically. One of the most important advantages of using this bull call ladder spread instead of an open bull call is you have to execute an additional transaction that reduces the initial cost of implementing the strategy.

In this option strategy, you will enjoy limited profit, and the maximum profit you can gain only when the market keeps moving between the higher and middle strike price. And you can calculate that by deducting the middle strike price and lower strike call minus the net initial payment. While on the other hand, your maximum loss can be unlimited, if stock goes above the breakeven point.

Summing-up

Apart from these top best bullish option strategies, you can also use the diagonal call spread, in which you have to buy a call option with a shorter expiration date and a higher strike price. This bullish option strategy is called diagonal spread because it unites the horizontal with vertical spread both have spreads that have different expirations and different strike prices respectively.

However, you can use the right bullish option strategy, as per the market conditions and as per your affordability and risk-bearing capability. Each strategy has its pros and cons with different risk and return potentials depending on your execution capability and market movement. But always make sure to take advice from market experts or derivatives analysts to get the best results.