Selecting Appropriate Option Strategy for Current Market Condition

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Each option strategy has its own advantages and limitations. An option trader can get the best from opportunities offered by current market condition by applying appropriate strategy.  Here is the list of general market conditions and set of strategies that fits them well

Bullish Market

  • Covered call Writing
  • Buy Calls
  • Bullish Call / Put Spreads
  • Synthetic Long stock
  • Naked Put Write

Bearish Market

  • Covered Put Writing
  • Buy Puts
  • Bearish Call / Put Spreads
  • Synthetic Short Stock
  • Naked Call Writing

Neutral Market

As market spends most of the time (60%+) in this condition, lets subdivide this based on volatility as well.

Low Volatility

  • Buy Straddle
  • Buy Strangle
  • Diagonal Put/Call Spreads
  • Calender Spreads
  • Condor
  • Ratio Calender Spreads (gains with increasing volatility)
  • Ratio Write Puts

High Volatility

  • Sell Straddle
  • Sell Strangle
  • Write Ratio Spreads
  • Reverse Calender Spreads
  • Butterfly or Iron Butterfly

Happy Trading

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