Class: Options Strategies in a Bearish Market
OIC Education Program

Introduction (1 of 1)

Many investors turn to options in a bear market because they may offer more opportunities for return than stocks and other investments that tend to be profitable only when market prices are rising.

When the market, a particular sector, or an individual stock is falling, several options strategies can help you protect investments you've already made. And if you're considering a new stock purchase, for example, you can buy put options to lock in a selling price, and limit loss on the position, in case the stock price falls. Options may be used to generate income for your portfolio in a declining market.

Choose your objective

But it's important to decide before you trade what your main objective is — to protect new or existing stock investments against losses, speculate to realize profit from a falling stock price, or add income with limited protection — since the strategies that fit each of those goals are different.

Underlying assumptions:

For simplicity's sake, calculations of profit or loss do not include the impact of commissions, transaction fees, or taxes. You should discuss these with your brokerage firm before making a transaction. Similarly, the discussions that follow assume the use of regular calls and puts - that is, contracts whose terms have not been adjusted due to an underlying stock split or any corporate action such as a special dividend, spin-off, merger, or acquisition. The examples also assume that all contracts in the course represent 100 unadjusted shares with a strike and premium multiplier of 100.