The Types of Bullish Option Strategy To Use and Avoid

Are you looking to trade options but don’t want to blow your money on lottery-type long shots?

If so, you have the right mindset – even though it is advertised as a way to get rich quickly, options trading is about strategy and consistency.

With a good set of strategies in your playbook, you can consistently maximize returns, minimize losses, and always have an answer to any market event.

To help you out with this, I made a list of some of the most popular bullish options strategies. All of these have their specific uses, so knowing the whole lot will help you make use of any bullish opportunity with minimal risk.

Read on and see how each strategy works, when it should be used, and what its risks are (with examples!).

What is a Bullish Option Strategy?

Traders use bullish options strategies when they believe that the price of an underlying asset will go up over time.

Some bullish strategies seek to maximize returns, while others are geared towards minimizing potential losses.

Very bullish	Moderately bullish	Mildly bullish
Simply buying call options, or multiple calls is the most profitable, but also the most dangerous way of profiting from a bull run.	Buying multiple long or short options to create a position with lower risks but capped maximum profit is a prudent strategy if you’re not extremely bullish on a stock.	When the underlying stock doesn’t seem like it will go up much, you can write and sell options to profit from the stock’s passivity and protect yourself from any significant downside.

Why Use a Bullish Option Strategy?

There are several key benefits to using a bullish options strategy as opposed to trading stocks directly:

1. Limited risk:
   
   One of the biggest advantages of using options is that they offer limited risk—the highest potential loss is the price of the premium.
   
2. High potential returns with lower capital requirements:
   
   Buying an options contract is cheaper than buying 100 shares of the underlying stock, and this means higher profit potential.
   
3. Flexibility:
   
   Options traders can choose contracts with different strike prices, expiration dates, etc. This means traders can precisely tailor each trade to their specific market outlook and risk tolerance.
   
4. Hedging:
   
   Options can also be hedging tools that protect against losses in other investments. For example, if you have an active long position on a stock and it seems like it will go south, you could purchase a put option on that stock to hedge your position.

Once you’re familiar with the strategies below, take a look at the best app for options trading.

The 7 Best Bullish Option Strategies: 

1. Long Call (Buy a Call)

• When to use: Very bullish. The upside is unlimited.
• Max loss: Premium paid.

Buying a long call is the most bullish type of options trade. It is also the simplest to execute and one of the cheapest.

The idea is to buy a call option and exercise it (or sell it back) when the underlying stock goes up enough to make a profit while only risking the premium you paid.

Here’s how it works:

1. The trader buys a call option.
2. If the price of the underlying asset rises above the strike price before the expiration date, the trader can exercise the call option to buy the asset below the current market price and profit.
3. If the price of the underlying asset does not rise above the strike price before expiration, the trader will lose the premium paid for the contract.

Long Call Example:

XYZ stock is currently trading at $50 per share but you expect it to go up. To make use of the opportunity, you:

• Buy one call option on XYZ with a strike price of $55 for a $1 premium ($100, since each options contract represents 100 shares)

The total cost of this trade is $100 ($1 premium x 100 shares per contract).

Breakeven	If the underlying goes to $56 before expiration, the option can be exercised for $100. (profit of $100 – premium of $100 = $0)
Profit	If the underlying is higher than $56, the position is profitable. The max profit is unlimited.
Loss	If the underlying is lower than $56, the position is unprofitable. The maximum loss equals the full cost of the premium ($100).

2. Cash Secured Put (Sell a Put)

• When to use: At least moderately bullish on a stock both short- and long-term. Be prepared to buy the underlying shares.
• Max loss: Unlimited potential downside. You have to buy the underlying shares above market price.

Second on my list of options bullish strategies is the cash-secured put.

The cash-secured put involves selling a put option on a stock that you are willing to own at a specific price (strike price).

You receive a premium for selling the put option and are obligated to buy the stock at the strike price if the option is exercised. You can use this strategy to trade options for income.

The underlying stock doesn’t even have to go up – as long as it is below the strike price, you get to keep the premium.

Here’s how the cash-secured put works:

1. The trader sells a put option on a stock with a strike price at which they would be willing to buy 100 shares (if the option is exercised). By selling the put option, the trader collects a premium.
2. If the underlying stock’s price remains above the strike price before the expiration date, it will expire worthless and the trader can keep the premium.
3. If the underlying’s price falls below the strike price, the option may be exercised and the trader is obligated to buy the underlying asset at the strike price. The premium collected from selling the put option reduces this expense.

Cash Secured Put Example:

XYZ stock is currently trading at $50 per share and you don’t expect it to go down. To make a moderately bullish bet, you:

• Sell one put option on XYZ with a strike price of $45 for a $1 premium
• Have enough cash in their account to buy 100 shares of XYZ at the strike price of $45

The total credit you get from selling the put option is $100 ($1 premium x 100 shares per contract).

Breakeven	If XYZ goes to $44, you have to buy 100 shares at $45, incurring a loss equal to the credit you received.
Profit	If XYZ is above $45 before expiration, the option will expire worthless and the trader keeps the premium ($100).
Loss	If XYZ goes below $44 before expiration, the trader will incur a loss greater than the premium gained. The potential downside is unlimited.

3. Bull Call Spread

• When to use: Moderately bullish—maximum profits are capped.
• Max loss: Premium paid minus the credit earned for selling another call option.

The bull call spread strategy involves buying a call option with a lower strike price and selling a call option with a higher strike price. The options must have the same expiration date and be on the same underlying asset.

The idea is, the premium you get from selling the higher strike price option lowers the potential cost of the trade, but your potential profits are capped.

Here’s how the bull call spread strategy works step-by-step:

1. The trader buys a call option on a stock at a lower strike price.
2. At the same time, the trader sells a call option on the same underlying stock with a higher strike price.
3. The premium received from selling the higher strike price call option offsets the premium paid for the lower strike price call option.
4. If the underlying’s price rises above the higher strike price, the trader can exercise the lower strike price call option to buy the asset at the lower price. Then, they can sell it at the higher market price when the higher strike price call is exercised—for a profit.
5. If the underlying stock drops below the lower strike price, both options will expire worthless, and the trader’s losses will be equal to the difference between the two premiums.

Bull Call Spread Example:

Let’s say XYZ stock is currently trading at $50 per share. Expecting a modest price jump, you:

• Buy one XYZ call option with a strike price of $50 for $2 premium
• Sell one XYZ call option with a strike price of $55 for $1 premium

The total cost of the trade is $100 ([$2 premium x 100 shares per contract] – [$1 premium x 100 shares per contract]).

Breakeven	If the underlying stock reaches $51, you can make a $100 profit by buying shares below price, covering all expenses.
Profit	If the underlying is above $51 before expiry, the trader can net a profit. As the trader is obligated to sell at $55, the maximum profit for this trade is $400.
Loss	If the underlying is below $51 at expiry, the trader will incur a loss. The maximum potential loss is $100.

4. Bull Put Spread

• When to use: Mildly bullish. Works best on low-volatility assets. Be prepared to buy the underlying shares.
• Max loss: Potential losses are capped by the put option you buy as protection.

Next on my list of bullish option strategies is the bull put spread.

The bull put spread strategy involves selling a put option with a higher strike price and buying a put option with a lower strike price—the underlying stock and expiration date are the same.

The idea is to profit by selling an expensive option and buying a cheaper one as protection.

Here’s how the bull put spread strategy works:

1. The trader sells a put option on a stock at a higher strike price (expensive option).
2. At the same time, the trader buys a put option on the same stock with a lower strike price (cheap option).
3. If the underlying stock rises above the higher strike price, both options expire worthless and the trader keeps the difference in the premiums as profit.
4. If the underlying’s price is somewhere between the two strike prices, the trader loses because they have to buy shares above the current market price, and can’t sell them for a profit.
5. If the underlying stock falls below the lower strike price, the trader can exercise the lower strike price put option to sell the shares they had to buy because of the contract they sold. This puts a cap on potential losses.

Bull Put Spread Example:

XYZ stock is currently trading at $50 per share and you expect the price to stay at the same level or go up slightly. To profit from XYZ’s stability, you:

• Sell one XYZ put option with a strike price of $45 for $1 premium
• Buy one XYZ put option with a strike price of $40 for $0.25 premium

The total credit received from the trade is $75 ([$1 premium – $0.25 premium] x 100 shares per contract).

Breakeven	If the underlying reaches $44.25, you will have to buy 100 shares at $45 (loss of $0.75 per share), breaking even.
Profit	If XYZ is above $44.25 before expiration, you will profit. If XYZ goes above $45, both options will expire worthless, and the trader keeps the profit from selling the contract ($75).
Loss	If XYZ drops below $44.25, you have to buy shares at an unfavorable price, incurring a loss. The losses are limited by the lower strike option. The maximum net loss is ($45 – $40) x 100 shares – $75 premium = $425

5. Poor Man’s Covered Call

• When to use: Moderately to very bullish. Use when you expect a stock to appreciate in the short and long term.
• Max loss: The maximum loss equals the premium minus the credit earned for selling the first short-term call option.

The poor man’s covered call involves buying a long-term call option and selling short-term call options against it. The options must have the same underlying asset and expiration date.

The idea is to sell a short-term option, and if it expires worthless, sell another one immediately, and so on. This lets you rake in as much premium money as possible while using the long-term call as insurance—the strategy doesn’t require much cash, hence the name.

Here’s how the poor man’s covered call strategy works:

1. The trader buys an out-of-money long-term call option with a lower strike price.
2. The trader then sells a short-term out-of-the-money call option with a higher strike price.
3. The premium received from selling the short-term call options helps to offset the premium paid for the long-term call option.
4. If the underlying’s price goes above the short-term call option’s strike, the trader can  exercise the long-term call option to buy the stock cheap and sell it for a profit when the short-term option is exercised.
5. If the underlying’s price ends up somewhere between the two options’ strike prices, the short-term options will expire worthless, and the trader can sell new short-term call options against the long-term call option to continue generating income.

Poor Man’s Covered Call Example:

Let’s say you own 100 shares of XYZ stock, currently trading at $50 per share, and believe the price will remain relatively stable or increase slightly over the next few months. To use the shares to make extra money, you could implement a poor man’s covered call strategy by:

1. Buying a longer-term call option (e.g. a 6-month call option) with a strike price slightly above the current market price (e.g. $55 strike price) for a premium of $3 per share.
2. Simultaneously selling a shorter-term call option (e.g. 1-month call option) with a higher strike (e.g. $60 strike price) for a premium of $1.50 per share.

The total cost of the trade is $150 ([ $1.5 premium – $3 premium] x 100 shares per contract).

Breakeven	If the underlying’s price goes to $56.5, you can exercise the long-term call option for a profit of $150 and break even.
Profit	If the underlying stock goes above $56.5, you profit. If the stock reaches $60, you can buy shares at $55 using your call option, and sell them for a $500 profit. If the stock doesn’t reach $60 and the short-term option expires, you can keep selling new ones to keep earning credit.
Loss	If the underlying’s price is below $56.5 before expiration, you lose money. The potential losses are capped at $150.

6. Bull Ratio Spread

• When to use: Moderately bullish. Max potential profit is capped by the higher strike price option you sell.
• Max loss: The maximum potential loss is equal to the difference between the premiums of the options you bought and sold.

The bull ratio spread strategy involves buying one or more call options at a lower strike price and selling one or more call options at a higher strike price. The options must have the same expiration date and be on the same underlying asset.

The idea is to offset potential losses by selling the higher strike price option—but this comes at the cost of limiting maximum potential profit.

Here’s how the bull ratio spread strategy works:

1. The trader buys a call option at a lower strike price.
2. At the same time, the trader sells a call option on the same underlying stock at a higher strike price.
3. The premium from selling the higher strike price option helps to offset the premium paid for the lower strike price option.
4. If the underlying stock stays below the lower strike price, both options expire worthless, and the trader loses money.
5. If the stock rises between the lower and higher strike prices, the trader can exercise the lower strike price calls to buy the asset at a favorable price and the higher strike call option will expire.
6. If the underlying stock goes above the higher strike, the trader can exercise the lower strike price call options to buy the asset, and then sell it for a profit when the higher strike price call is exercised.

Bull Ratio Spread Example:

XYZ stock is currently trading at $50 per share, and you expect it to go up by a lot. But you can’t be too sure about your prediction so you:

• Buy two XYZ call options with a strike price of $50 for $3 premium each
• Sell one XYZ call option with a strike price of $55 for $1 premium

The total cost of the trade is $500 ([$3 x 2 contracts] – $1 x 100 shares).

Breakeven	If the underlying goes to $52.5, you can exercise the two call options, make $500, and break even.
Profit	If the underlying is above $52.5, you will profit from exercising the call options, and the higher strike call will expire worthless. If the price goes above $55, you can profit by buying the underlying shares below market price. But have to sell 100 shares at $55, which limits your max profit.
Loss	If the underlying stays below the lower strike, all options will expire worthless. The max loss is $500.

7. Bull Call Ladder Spread

• When to use: Very bullish. This strategy maximizes the potential upside.
• Max loss: Maximum losses are very high and equal to all the premiums paid.

Finally, the bull call ladder spread rounds out my list of options bullish strategies.

This highly bullish strategy involves buying multiple call options at different strike prices with the same expiration date. The strategy is called a “ladder” because the strike prices are spaced out at equal intervals, creating a step-like pattern on a graph.

Here’s how the bull call ladder spread strategy works step-by-step:

1. The trader buys a call option with a lower strike price.
2. At the same time, the trader buys a second call option with a higher strike price.
3. The trader continues to buy additional call options at progressively higher strike prices, creating a ladder-like pattern of options.
4. If the price of the underlying asset rises above the highest strike price, all of the call options expire in the money, and the trader can exercise them for a handsome profit.
5. If the price of the underlying asset rises between the lower and higher strike prices, the trader may exercise the lower strike price call options to either offset the cost of the premiums or make a net profit.
6. If the price of the underlying asset falls below the strike prices of the options, the trader may lose the premium paid for the options.

Bull Call Spread Example:

Let’s say you are very bullish on XYZ stock, currently trading at $50 per share, and want to use a bull call ladder spread strategy to profit from the expected rise in price. You buy:

• One XYZ call option with a strike price of $45 for $6 premium
• One XYZ call option with a strike price of $50 for $3 premium
• One XYZ call option with a strike price of $55 for $1 premium

The total cost of the trade is ($6 + $3 + $1) x 100 shares = $1,000.

Breakeven	If XYZ goes to exactly $52.5, you can exercise the first and second call and earn $1,000 to cover the price paid for the premiums.
Profit	If XYZ goes above $52.5, you can exercise some of the options for a profit. If XYZ is above $55 after expiration, the trader can exercise all 3 options for a profit. There is no max profit limit.
Loss	If XYZ is below $45 at expiration, all the options will expire worthless, incurring a $1,000 loss. If XYZ ends up between $45 and $52.5, the trader can offset that loss by exercising at least one option.

Final Word: Bullish Option Strategy

Each of the mentioned bullish strategies has its purpose – it all depends on your risk tolerance, trading balance, and the outlook you have for a specific underlying asset.

To choose which strategy to use, you should first look at the underlying asset and see which strategy works for that given situation. Trading isn’t about winning big as much as it is about winning consistently over long periods, so it is usually wiser to choose the strategy with the lowest odds of failure, rather than the one with the biggest potential payoff.

---

• Share
• Share
• Tweet