Trading Strategies Involving Options

Trading is an important part in any financial market. Traders are the one who do investment for a very short time and takes back the profit as soon as possible. While investors are those who remain invested for a longer period. Traders need to adopt strategy to yield profit else will end up making huge losses unlike investors. Traders basically adopt strategies based on the condition prevailing in the market. They adopt certain strategies for bullish market, whereas adopt the opposite strategies for bearish market.

Trading strategies in a bullish market are,

• Buy on dips. It is an important strategy that a trader must adopt during a bull run. They must buy stocks on dips.
• Buy put options on the peak. This is a must for traders. They must use this option as a hedge and protect the investment from making huge losses.
• Traders must be more focused towards the market than the investors. Traders tend to make more loss if the loose the timing. It is not the case for investors. Traders must be in a position to receive the news that will have impact in the market movement. The faster they get these information’s about the movers and shakers the better profit they can make out in the market.

Trading strategies in a bearing market are,

• Investment in the stocks must be as minimal as possible. It is mainly because of the reason that the appreciation of the stocks will be very small or will in negative in case of bearish market.
• The traders can go for shorting in the futures. They can buy back the futures both of stocks and index at a lower price on a later period. This can be used as a hedging process in case of bearish market.
• Traders must invest more cautiously in a bearish market rather than in bullish market. The room for error in a bearish market is less than compared to bullish market. The market punishes the traders more in a bearish market rather in a bullish market if the investors tend to make mistake.

The traders must adopt a suitable strategies based on the mood in the market. The traders must be in a position to understand whether the market is bearish or bullish. It is important to know what the mood in the market is because at times the market might be decisive.

Question

• What are the strategies adopted in a bull market by the traders?
• What are the strategies adopted in a bear market by the traders?