Stock Option Trading Strategies: Trading Stock Options for Profit in a Bear Market
by Billy Williams
Bear markets, like bull markets, offer many opportunities in trading stock options, shorting the index futures, or swing trading stocks but the challenge is that bear markets come around so infrequently that many traders don’t know how to capitalize on those opportunities. Bear markets by their very nature are volatile but because of that volatility it is tailor made for trading stock options for income, forex swing trading, and swing trading stocks with the right stock option trading strategy or along with any other reliable option trading system. In fact, the potential for fast, accelerated gains in the stock market during a decline is huge!
One of the easiest ways to make money during a bear market is to simply find stocks that have been leading the market and short them using an effective swing trading strategy. A lot of times, when a market just falls apart most of the stocks follow quickly but even the strongest stocks that have resisted the decline must fall eventually. If you are working or a part-time trader, this is important to keep in mind if you are swing trading either the stock itself, implementing a spread option trading strategy for income, or stock option trading the stock’s price action for a potential homerun by swing trading the stock’s price momentum. Once the stock begins it’s inevitable decline, the market often pulls the rug right out from under it and the decline is fast, deep, and frightening to behold. Core Laboratories was a stock I touted as value play when it traded at $112 a share when it boasted over a 142% ROE but once the decline began in the general market it no longer mattered how much of a bargain it was as it fell from over a high of $146 a share to a low of below $49 a share.
However, by using just a simple moving average system combining the 10 day SMA (simple moving average), the 20 day SMA, and a 30 day EMA (exponential moving average), once CLB broke below $100 a share then support was gone and momentum had it falling to the downside hard all the way to it’s low at $49 a share. With the price trading below the MA’s then once it pulled back to the 20 with the 30 as our stop then you could find an easy entry to capitalize on with a short trade of either the stock or with the put option. By trading stock options with swing trading though you can take advantage of the enormous leverage while taking advantage of limiting your risk to just the purchase price of the option itself.
Credit spreads, also an option trading strategy, also are effective and they throw off steady income. By implementing a Bear Call Spread, this option trading strategy allows a trader to make money simply by letting selling a higher priced call option and keeping the premium as payment while hedging against risk but purchasing a lower priced call option as hedge. As long as the stock’s price declines, remains flat, or within it’s risk parameters defined by the position the trader can stay in profit and keep the premium as income.
By having a “tool chest” of trading strategies you can see that you can actively participate in a bear market and take advantage of the opportunities it presents than just sit on the sidelines and “buy, hold, and pray”. And, incidentally, having a solid option trading education can be invaluable if for no other reason than to hedge your stock portfolio for long-term investing. By taking the time to gain the knowledge and skill on how to make money trading stock options, swing trade stocks, and implement reliable stock and option trading systems you put yourself head and shoulders above the crowd of investors who would rather suffer thru a bear market along with their net worth rather than learn how to think for themselves and take responsibility for their financial futures.
