Bullish Options Strategies: Should You Buy a Call or Sell a Put?

When you're bullish, does it make more sense to buy a call or sell a put?

Oct 18, 2015 at 11:00 AM
    facebook X logo linkedin


    Call buying and put selling are both considered "bullish" strategies, since they're based on the belief that the underlying stock will remain strong through expiration. However, these approaches are far from interchangeable. Here's a quick primer on when you should use each options strategy.

    Let's start with buying a call. This is a pretty straightforward bullish strategy, because you're expecting the stock's price to rise. Specifically, when you buy a call, you need the stock to make a fast, aggressive move higher. This big jump on the charts will offset the ill effects of time decay (more on that later), and ensure you can collect your gains before the option expires.

    Your profit opportunity in a call-buying strategy is theoretically unlimited. If the trade moves against you, your maximum potential loss is capped at the premium you paid to enter the position (no matter how far the stock falls).

    Call buyers also get to enjoy the benefit of leverage. This means they stand to collect gains that are many times greater than their initial investment.

    On the other hand, selling a put is technically considered to be a neutral-to-bullish strategy. You don't necessarily expect the underlying stock to rise significantly, but you at least expect the shares to hold steady above the strike through the lifetime of the trade. Depending upon strike selection, you may be able to profit with a sold put whether the stock rallies, edges higher, remains flat, or even pulls back slightly.

    When you sell a put, you collect a premium for the sale upfront. This is your maximum possible gain on the trade, even if the stock triples in value prior to expiration. This strategy offers a very limited profit potential, as compared to a purchased call.

    Put sellers do benefit from time decay, which erodes the option's value as expiration approaches. Conversely, time decay is a negative for call buyers.

    However, a sold put carries a significantly higher risk profile than a sold call. If the stock price declines and your sold put goes in the money, you could be assigned -- or you might end up buying to close the put at a loss, which can be steep if the shares take a serious hit.

    It's also worth noting that many beginning option traders may not be approved to sell naked puts right away, due to the increased risk profile. Additionally, put sales typically carry a margin requirement, which means you'll need additional capital to dedicate to the trade.

     

    Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

    This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

    On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

    Start targeting gains like the ones our subscribers have seen recently, including:

    213.3% GAIN on AutoNation calls
    100.0% GAIN on Monster Beverage calls
    100.4% GAIN on Walgreens Boots Alliance puts
    100.4% GAIN on ON Semiconductor calls
    257.7% GAIN on Dell calls

    101.0% GAIN on Apollo Global Management calls
    103.6% GAIN on JP Morgan  Chase calls
    105.3% GAIN on DraftKings calls
    101.3% GAIN on Airbnb calls
    203.0% GAIN on Shopify calls
    102.0% GAIN on Cboe Global Markets calls
    100.9% GAIN on Boeing calls
    102.1% GAIN on Microsoft puts
    102.3% GAIN on First Solar calls
    101.5% GAIN on PulteGroup calls
    101.0% GAIN on Apple calls
    209.4% GAIN on NXP Semiconductors calls
    100.8% GAIN on Uber Technologies calls
    100.4% GAIN on Academy Sports and Outdoors puts
    102.2% GAIN on Trade Desk calls
    100.8% GAIN on DoorDash calls
    100.0% GAIN on Camping World Holdings puts
    100.0% GAIN on Cboe Global Markets calls
    100.2% GAIN on C3.ai calls
    238.5% GAIN on Oracle calls

     
     
     


     
     

    Rainmaker Ads CGI