Options Trading in a bear a market can be a very profitable endeavor, it is no secret – We are definitely in a current bear market. Stock prices have been falling for months, and it seems they will only go lower. For most people, this means they have given up on stocks and the markets altogether. However, this does not have to be the case! There are still ways you can earn money through options trading in a bear market. We will address some of the best options trading strategies for making money when the markets are down.
A bear market is when there has been a 20% decline in the stock market from its most recent 52-week high. We are considered in a bear market now that the Dow Jones Industrial Average and the S&P 500 Index are down over 20%. This is typically caused by investor fear or pessimism. As stock prices fall, more and more investors sell their positions, emptying their entire portfolio, and the market continues to decline. While this may seem like the worst ever time for investing, there are opportunities to profit in a bear market.
One common way to profit in a bear market is to buy undervalued stocks. This can be a risky strategy, but if done correctly, it can lead to significant profits. Another way to profit in a bear market is to sell short positions. This involves selling shares of a stock you do not own and hoping that the price continues to falls to buy it back at a lower price and pocket the difference. Shorting stocks is a high risk choice available, as it can lead to substantial losses if the stock shorted has high volatility and rallies significantly higher.
But what if you could still benefit from the down market while also incorporating proven options strategies? So, what are the best options trading strategies for a bear market? First and foremost, it is essential to remember that options are a tool that can be used to hedge against downside risk. If you are worried about a stock price falling, you can purchase put options as insurance. This way, even if the stock price does fall, you will not lose any money.
Here are five options trading options strategies you can use to profit during this time.
Trading Options Strategy # 1
Covered Call: A covered call can be traded when you own 100 shares or more of an underlying stock and sell a call against it.
Example: Let’s say that XYZ stock is trading at $50, and you believe it will not go below $40 in the next month. You could sell a $45 strike price call for $500 and collect the premium. If XYZ is above $45 at expiration, you will assign 100 shares at $45 and pocket the $500 in premium.
If it expires below $45, you get to keep the stock and the premium. This strategy aims to make a small amount of money with limited downside risk.
Trading Options Strategy # 2
Put Selling: Put selling is when you sell a put on a stock you do not own in anticipation of buying it at a lower price or having the option expire worthless so you can pocket the premium paid.
Example: Let’s say XYZ is trading at $50, and you sell a $45 put for $500. If XYZ is above $45 at expiration, then the option expires worthless, and you get to keep the $500 in premium.
If it expires below $45, you are assigned 100 shares at $45 and have to buy it at that price.
Trading Options Strategy # 3
Protective Puts: A protective put is when you buy a put on a stock that you own as protection in case the stock falls.
Example: Let’s say that you own 100 underlying shares of XYZ stock at $50, and you are worried about it going below $40. You could buy a $45 put for $500. If XYZ falls to $35, your put would be worth $1000, and you could sell it and make a profit.
If XYZ exceeds $45 at expiration, you will keep the stock and the premium. The goal of this strategy is to protect your downside risk.
Trading Options Strategy # 4
Long Puts: A long put is when you buy a put on a stock that you believe will go down in the future.
Example: Let’s say that XYZ is trading at $50, and you believe it will be below $40 in the next month. You could buy a $45 put for $500. If it expires below $45, then you would make a profit.
If it expires above $45, then you would lose the premium (net cost paid for the option). The goal of this strategy is to make a large amount of money if the stock drops significantly.
Trading Options Strategy # 5
Short Puts: A short put is when you sell a put on a stock that you believe will not go down in the future. Perhaps you think the stock has been beaten down enough and will turn around in price soon.
Example: Let’s say that XYZ is trading at $50, and you believe it will be above $60 in the next month. You could sell $45 put options contracts for $500. If it expires above $45, then you would make a profit.
If it expires below $45, you must buy the stock at that price. The goal of this strategy is to make a large amount of money if the stock doesn’t fall significantly.
All of these strategies can be used to make money in a bear market. Choosing the right method for your investment goals and risk tolerance is vital.
These are just a few options trading strategies that can be used in bear markets. While it may seem challenging to make money when the markets are down, it is still possible to profit from options trading. Using the right strategies, you can make much money when everyone else is losing theirs.
Summary: Options Trading in a Bear Market
If you want to make money in these challenging times, options trading may be the answer. Many people are hesitant to trade options when the markets are down, but that’s the best time to do it. Options are not as complex as you may think, as long as you have been educated on how you can successfully use them to make money.
Our trading system relies on buying a long call and put options, where we can make money in a bull or bear market.
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
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