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Bearish Strategies

Bearish Options Strategies

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Learning how to make money in down markets is a critical component to your long-term success rate. The ability to profit when stocks are falling gives options traders a superior edge in the financial markets.
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Summary

Declining markets and high IV give traders an amazing opportunity to sell expensive options that can quickly decay in value and produce a profit. This truth is that great traders make the vast majority of their money when markets are falling. In this module, we'll cover our favorite strategies to profit from bearish markets with credit spreads, naked options, etc.


Objectives
  • Setup and trading directionally bearish option selling strategies.
  • How to trade that's moving lower when implied volatility is also low.
  • Creating synthetic short positions in stock with much less risk.
  • Deciding whether you use a debit spread or credit spread.

12 lessons

Bear Call Spread

A bear call credit spread is a multi-leg, risk-defined, bearish strategy with limited profit potential. A bear call spread is entered when the seller believes the price of the underlying asset will be below the short call option’s strike price on or before the expiration date.
6:47

Bear Put Spread

A bear put debit spread is a multi-leg, risk-defined, bearish strategy with limited profit potential. A bear put spread is entered when the buyer believes the underlying asset price will decline before the expiration date.
7:12

Long Put

A long put is a bearish options strategy where the expectation is a decline in price prior to expiration. Buying a put option is a levered, risk-defined alternative to selling shares of stock.
7:30

Short Call

A short call is a single-leg, bearish options strategy with undefined risk and limited profit potential. A short call is sold when the seller believes the price of the underlying asset will be below the strike price on or before the expiration date.
8:25

Bear Put Backspread

A bear put backspread is a multi-leg, risk-defined, bearish strategy, with unlimited profit potential. A bear put backspread is purchased when an investor believes the underlying asset’s price will be below the long put strike prices at expiration.
7:47

Call Broken Wing Butterfly

A call broken-wing butterfly spread is an advanced bearish option strategy with the goal of having no downside risk. Call broken-wing butterflies consist of buying one in-the-money long call, selling two out-of-the-money short calls, and buying one out-of-the-money long call above the short calls.
6:33

Put Calendar Spread

A put calendar spread is a multi-leg, risk-defined strategy with unlimited profit potential. Put calendar spreads are neutral to bullish short-term and slightly bearish long-term.
7:15

Call Diagonal Spread

A call diagonal spread is a multi-leg, risk-defined, bearish strategy with limited profit potential. A call diagonal spread is entered when an investor believes the stock price will be neutral or bearish short-term.
6:27

Custom Naked Call

A custom naked call is a bearish options strategy that combines two strategies, which provides some protection if the stock moves higher. Think of the strategy as entering an iron condor without the long call.
7:00

Covered Put

A covered put is an options strategy with undefined risk and limited profit potential that combines selling stock with a short put option. Covered puts are used to generate income if an investor is moderately bearish while short a stock.
6:07

Synthetic Short Stock

To create a short synthetic stock position, you simply buy an ATM put option and sell an ATM call option at the same strike price. This creates a bearish position with much less capital than shorting a stock.
4:37

Bearish Debit Spread or Credit Spread?

If you are bearish and want to trade an option spread strategy, implied volatility is the main factor when deciding between bearish put debit spreads and bearish call credit spreads.
4:25
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Kirk Du Plessis
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