Learn Options Trade Selection: Matching the Right Strategy to Market Conditions
One of the most important skills in options trading is knowing which strategy to use when. If it drops, you buy at a discount.
Bearish Market: Defined Risk is Your Friend
When markets are falling or a specific stock is weakening, these setups help manage risk.
Example: Bear Put Spread
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Stock LMN is at $120
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Buy $120 put for $6.00
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Sell $110 put for $2.50
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Net debit = $3.50
Max profit: $6.50 if stock closes below $110
This spread provides strong downside exposure without needing to short the stock or pay full premium.
Sideways or Neutral Market: Time and Volatility Matter
Markets often trade sideways—especially during low-news periods. These strategies let you profit without picking direction.
Example: Iron Condor
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Stock is at $100
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Sell $95 put / buy $90 put
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Sell $105 call / buy $110 call
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Net credit = $2.00
Profit if stock stays between $95–$105
Best Conditions:
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Range-bound stock
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High implied volatility (you’re selling rich premiums)
High Volatility Environments: Fade the Fear or Play the Explosion
When implied volatility is high:
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Consider premium selling (condors, credit spreads)
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Be cautious buying naked options—they’re overpriced
Example: Short Strangle
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Stock DEF is at $150
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Sell $160 call for $3.50
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Sell $140 put for $3.00
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Net credit = $6.50
Profit if stock stays between $133.50–$166.50
Caution: Unlimited risk if stock breaks out strongly. Best used by advanced traders.
Earnings or Events: Trade the Reaction or the Implied Move
Example: Long Straddle Before Earnings
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Stock is at $200
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Buy $200 call for $5.00
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Buy $200 put for $5.50
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Total debit = $10.50
Profit if stock moves above $210.50 or below $189.50
Tip: This works best when implied volatility is not overly inflated.
Alternative: Iron Butterfly
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Sell ATM straddle
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Buy wings OTM
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Lower cost, defined risk vs
Learn Options: Match Strategy to Market Conditions
