When you are “bullish” a stock, it is your opinion that the stock is going to go up in price. While you could simply buy the stock, it is often more expensive than using a bullish options trading strategy. You can have a lot more leverage, meaning more potential reward with spending less money using options by simply buying the stock. There are many options strategies to employ when you have a bullish sentiment.
One option strategy you can use, is to buy a call on the stock above where it is currently trading. If the stock trades higher and goes through the call strike by more than you paid in premium you will be profitable. You could also use a call vertical. The call vertical is when you buy a call at a lower strike then you sell a call at a strike two or more higher. By doing this you still get the advantage when the price goes through the strike but you decrease your cost by selling a further out call. Of course the further out call will cap your gains at the strike you sold, but this is a simple method to reduce the cost/risk whenever you buy a call vertical. Another bullish strategy is to sell a put vertical. Meaning you sell the put closer to the money and buy another further away from the money as a spread. If the price of the stock stays the same or goes higher, you make money. If the price declines you would have to close or adjust the trade.
When and how you buy these different option strategies and how to manage them is what we teach at Sheridan mentoring every day. With our options education you can learn to take your sentiments whether bullish or bearish and know how you can use options and the leverage they afford, to your best advantage.
Yesterday in the Blog I talked about a Live GOOG Pre-Earnings Calendar I did. Today I took off the trade for about a 7% profit in 1 Day. I bought 1 April 28 Expiration 835 Call and Sold 1 April 21 Expiration 835 Call for $10.80 Debit and sold it out today for a Credit of $11.54 . The price of GOOG was 834 yesterday when I bought the Calendar and the price of GOOG today was 835 when I took off the Calendar for a profit. I made $74 for every 1 Calendar, that would be a yield of 6.8% ( $74 divided by $1080).Why did the Calendar do so well in 1 Day? The implied Volatility of the long option went up more than the short option did.
What would be an explanation of why that happened? Referring to yesterday’s Blog, we originally bought an expiration that will be affected by Earnings and sold an expiration that would be expiring before earnings comes out. Therefore as each day passes, our long options may increase in Volatility while our short options may do nothing.
With RUT trading around 1360 and volatility up a bit, a trade that looks interesting is an asymmetrical iron butterfly entered below the current trading price as follows:
RUT at 1358
Sell one May 19 exp 1330 call
Buy one MAY 19 exp 1350 call
Sell one MAY 19 exp 1330 put
Buy one MAY 19 exp 1280 put
This trade gives an upside that is profitable no matter how high RUT trades and put side with the risk well below where RUT is currently trading. Take the trade off at 10% gain or loss.