Professional option traders choose a strategy by market view and combine calls and puts at different strikes and expirations to define their risk. For a bullish view they use bull call spreads and call ratio back spreads; for a bearish view, bear put spreads and put ratio back spreads; for a sideways view, iron condors. MarketXLS provides Excel templates to model each of these strategies. This is educational content, not investment advice.
In this article, we will explain a couple of strategies followed by professional traders and how marketXLS provides the resources to make it pretty easy for even a novice trader.
Strategies used when assumption being Bullish on the Underlying asset:
1. Bull Call Spread –
It consists of buying a call option at the money strike price and at the same time selling a call option with a higher strike price which is out of the money. Both the call options should be of the same underlying asset and expiry date. It is a limited profit and limited risk strategy. MarketXLS has a template for this strategy that shows the payoff at different strikes.
Template Link:
Video Link on how to use this template: " Blog explaining details:
2. Call Ratio Back Spread –
It consists of selling In the Money call option and buying Out of the Money call option of the same underlying asset and expiry date in a defined ratio. It is a unlimited profit and limited risk strategy used by the professional traders. Whenever they are bullish on any underlying asset, they pursue this strategy to have a chance of gaining big with limited risk. Here in marketxls, we have built template which provides easier way to simulate and execute the strategy.
Template Link:
Video Link on how to use: "
Strategies used when assumption being Bearish on the Underlying asset:
1. Bear Put Spread –
It consists of buying a put option with at the money strike price and at the same time selling a put option with a lower strike price which is out of the money. Both the put options should be of the same underlying asset and expiry date. It is a limited profit and limited risk strategy used by the professional traders.
Template Link:
Video Link on how to use: "
2. Put Back Ratio Spread –
It consists of selling In the Money put option and buying Out of the Money put option of the same underlying asset and expiry date in a defined ratio. It is a unlimited profit and limited risk strategy used by the professional traders. Whenever they are bearish on any underlying asset, they pursue this strategy to have a chance of gaining big with limited risk. Here in marketxls, we have built template which provides easier way to simulate and execute the strategy.
Template Link:
Video Link on how to use: "
Strategies used when assumption being Sideways on the Underlying asset:
1. Iron Condor –
It is a combination of Bull Put Spread and Bear Call Spread strategies which consists of selling out of the money call and put options and buying deeper out of the money call and put options of the same underlying asset and expiry date. It is a limited profit and limited risk strategy. Whenever professional traders feel that there will be non-directional moves in the underlying asset, they execute this strategy to get return on their investment. MarketXLS provides the ready-made template for this which aids in analysing and executing traders in much easier manner.
Template Link:
Video Link on how to use: "
Bottom Line –
There are a lot of other option strategies like Straddles, Strangles, Calendar Spread, Ladders, and many more which are used by the traders and hedge funds to earn a return on their investments. MarketXLS has in-built templates which aid to analyze all these strategies and choose which one suits best for your risk appetite and market view and execute the same.
You can go through the MarketXLS template () and MarketXLS Youtube Channel () to further understand all these strategies.
