Bearish & Protective Strategies

Bearish - bearish strategies are used when it is anticipated the market or a stock is going to go
down, either for macroeconomic of fundamental reasons.

Single Legged

Short Stock
- shorting a stock is basically borrowing shares, selling them in the anticipation you will
be able to buy them back at a lower price and return the shares. It's no more difficult to execute than
buying a stock as long as shares are available to your broker to short. The orders would be "sell
short" to short them and "cover" to buy them back. Profit is limited to 100%, losses are theoretically

Buy a put - is the option to sell a stock at a certain price. You don't have to own the stock, but if you
don't, you can't execute the sell. You can only hope to profit by the value of the put increasing above
what was paid for it. In order for that to happen the stock price has to go down.

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Write a call -


Double Legged

Bear Call Spread
- involves selling an ITM call and buying an OTM call.

Bear Put Spread - involves buying an ATM or ITM put and selling an OTM put.

Protective Strategies

Protection of an owned stock position

Write an ATM or OTM or even and ITM Call -

Buy an ITM Put - ITM options have less time premium than ATM or OTM options. The further ITM the
option, the less time premium. So an ITM put can provide downward protection at close to a penny for
penny movement in the stock. On the other hand, if the stock goes up, the ITM put counteracts any
profit made on the stock moving up penny for penny as well. A protective straddle can help with this.

Protective Straddle - might be the purchase of a straddle that has the put ITM with the same strike
call being OTM. Because the call is OTM, it should be relatively cheap.

Collar - mentioned earlier is a protective combination to protect a long position in a stock. An OTM
call is written and an OTM put is bought. If the call premium is the same or larger than the put
premium, it's called a no cost collar. If the stock goes down, money is made on the depreciation of
the written call and the appreciation of the long put.
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