Navigating Volatile Markets Just Got Easier with This Strategic Options Approach
Choppy Markets? Don't Sit and Wait!
These past few weeks have been a rollercoaster for investors, and the uncertainty surrounding US tariffs isn't helping matters. But fear not, for sitting on the sidelines isn't the only option anymore.
🤑 100%+ YoY SaaS growth. Jurny is hospitality's AI edge. Round closes April 30! Invest now. 💼Interested in exploring alternative investment opportunities? Look no further than options trading. With a plethora of strategies available, options trading allows you to generate income in any market - volatile, sideways, or slightly bearish included. So, let's delve into the world of bear call trades and learn how our website's new PnL charting tool can work to your advantage.
What's a Bear Call?
A bear call spread, a nifty options strategy, consists of selling a call option (short call) and buying another call option (long call) with a higher strike price, both on the same underlying asset and with the same expiration date. The premium you receive from selling the short call is typically higher than the premium you pay for the long call, making it an income-generating strategy.
💡 Pro Tip: Options also have a premium attached, which is their value. You can find the bid and ask price on an options chain, and since options are based on 100 shares of the underlying, you'll need to multiply it by 100 to get the contract price.
The Gist of Bear Calls
With the bear call strategy, there are three crucial points to know: the maximum profit, the breakeven point, and the maximum loss.
In the example below, let's assume you sell a call on XYZ stock with a $100 strike price and collect $2 per share. Then, you buy the $105 strike call on the same underlying asset and expiration date for $0.50 per share.
🌟 Maximum Profit: The net credit, calculated by subtracting the premium paid from the premium received, yields the maximum profit per contract. In this instance, you'll receive a dollar fifty, or a hundred fifty dollars per contract for the bear call spread.
🌈 Breakeven Point: If the price of XYZ moves between $100 and $101.50, the trade will start to lose value - depending on how close XYZ's price is to the breakeven point. The breakeven point of a bear call is calculated by adding the net credit received to the short call strike. So, in this case, that's $101.50.
🔵 Maximum Loss: The maximum loss occurs if the stock trades at or above $105 at expiration. You can calculate the Maximum loss by taking the spread width and subtracting the credit, multiplied by 100, for every spread. So that's $3.50 or $350 per contract.
Bear calls can be traded on any time horizon, but aim for bear calls with 30 to 45 days to expiration (DTE) for best results.
Our Website's Option Screener and PnL Charting Tool
Now, let me guide you on how to utilize our website's existing Option Screener tool in conjunction with the new charting tool to amplify your bear call trades.
🔎 Accessing the Bear Call Option Screener: Start by clicking "Options" at the top of the homepage, then select "Bear Call." From there, click on "Screen" to access the filters page.
🔑 Adjusting the Filters: All the filters are set to default, except for the Probability of Loss filter, which I recommend setting to look for trades with a probability of loss below 30%.
🔝 Sorting the Results: After running the screen, sort the results based on the lowest to highest risk-reward ratios for a better analysis.
📈 Example Result: As an example, you may find a bear call spread on AMZN for $3.84 net credit per share, with a maximum loss of $11.16, resulting in a 2.91 to 1 risk/reward ratio. The trade has a 30.0% chance of loss and expires on June 20, 2025.
📊 Exploring the Details: To dig deeper into the trade details, click the chart icon beside the expiration date, and the PnL charting tool will appear. The tool showcases the profit/loss chart along with relevant trade details.
Final Thoughts
In a nutshell, bear call spreads give you the opportunity to generate income in choppy or slightly bearish markets without needing massive directional bets. With tools like our website's Option Screener and PnL charting tool, it's simpler than ever to find, evaluate, and manage these trades with confidence.
But, as always, do your research, stay disciplined, manage your risk wisely, and remember - slow, steady, and informed wins the race.
💡 Did You Know: On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, please view the website's Disclosure Policy here.
- With the approaching year 2025, investors can explore alternative income-generating opportunities such as options trading, which allows one to profit in any market, including choppy or bearish markets, by employing strategies like bear call trades.
- For informed investors seeking to take advantage of bear call trades, our website offers an Option Screener and PnL charting tool to facilitate the evaluation and management of bear call trades with precision and confidence.
- The bear call spread strategy can generate income without demanding massive directional bets, as it involves selling a call option and buying another call option with a higher strike price, both for the same underlying asset and expiration date, thus forcing an agreement between the buyer and seller about the potential price of the asset by a specific date.
- Upon finding potential bear call trades using the Option Screener tool, investors can use the PnL charting tool to examine trade details, examine the profit/loss chart, and ensure all strategies align with their investing goals and risk tolerance.
