Bear Market vs Bull Market Stock Option Trading

When it comes to Bear Market vs Bull Market Option Trading, there are a few things that you need to know to make the best decisions for your portfolio. In this video, we will discuss the basics of each market and how you can trade in them. Additionally, we will look at stock options and how they can be used to your advantage during these types of markets.

We discuss:

– Bear Market: what is it and how to trade

– Bull Market: what is it and how to trade

– Bear Market and Bull Market: how long do they last?

– Stock Options: how to trade them during each market

Real quick guys, please hit the like and subscribe buttons below as well as comment and let me know your thoughts on this video.

Also, be sure and grab the FREE Simplified Options Strategies Trading Guide. I’ll put a link down below. It covers the different options strategies setups, how and when to put them on, max profits, and trade management. It’s a great guide to have by your side when trading options.

So let’s get started!

Bear Market: what is it and how to invest

A Bear Market is defined as a time when stock prices fall by 20% or more from their previous high. Bear markets typically happen when the economy is in a recession or is slowing down.

Investing in Bear Markets can be tricky because you are buying stocks at a time when most people are selling. However, there are opportunities to make money if you know what you are doing.

We should look to:

Invest in sectors that perform well in Bear Markets

Sectors that perform well in Bear Markets include:

– Utilities

– Healthcare

– Consumer Staples

– Food and Drug Stores

What do all of these industries have in common? They all include items that people cannot live with out. We all need healthcare and utilities. We need to stay well and keep our lights and heat on and have a way to communicate with our cell phones. We also need to eat and continue to take care of ourselves.

It is the consumer discretionaries that we can cut out when things get tough.

We should also look to:

Look for stocks that are undervalued and have strong fundamentals

When in a Bear Market, many stocks will become undervalued. This is because investors are selling all stocks. This is our chance to buy the best of the best stocks in the sectors that will weather the storm.

Many stocks that are down in a Bear Market are usually down for a reason. However, there may be some that are down just due the market as a whole being down. These can be good buys.

Bull Market: what is it and how to invest

A Bull Market is defined as a time when stock prices rise by 20% or more from their previous low. Bull markets typically happen when the economy is growing.

Investing in Bull Markets is less risky than Bear Markets because you are buying stocks at a time when most people are buying. However, you still need to be careful because stock prices can go up and down very quickly.

Some Bull Market strategies include:

Buying stocks with a history of outperforming the market during Bull Markets

Stocks that have a history of performing well during bull markets are usually companies with strong fundamentals. These are the types of stocks you want to own during a Bull Market.

Companies such as Apple have already been through Bear Markets and come out of them stronger. They have huge amounts of cash on hand so this will happen again.

Buy growth stocks in emerging industries

Industries such as Fintech, Cyber Security, EV’s, DNA Sequencing and Robotics will all lead the way in the future. Companies such as Sofi, Palo Alto Networks, Illumina and Intuitive Surgical are companies that all should do well once we enter the next Bull Market.

Bear Market vs Bull Market: how long do they last?

Bear markets typically last 1-2 years while bull markets typically last 4-5 years. However, there is no guarantee that this will always be the case.

Mackenzie Financial wrote this report that states a few interesting facts.

Markets spend more time in positive territory (bull) than negative (bear).

Bull markets are, on average, longer and more intense, providing a more significant percentage change.

On average bear markets are more brief, and yet propogate fear. It is during these periods that there are significant investment ‘bargains’ to be found.

Stock Options: how to use them during each market

I like to invest on both sides during both bear and bull markets. It depends on what stage of the bear or bull market we are in as to whether I will have more bearish or bullish positions.

Option Investing at Beginning of Bear Market

It is always difficult to predict when we will be entering a bear market. However, there are indicators such as high inflation and rising interest rates. An inverted yield curve where the 10-year falls below the 2-year yield. Political unrest and higher commodity costs.

If we are near highs, these conditions are present and we have been in a bull market for 4-5 years then I lighten up and have more cash on the sidelines out of the market. I have at least 50/50 bearish and bullish positions.

Preferably, I sell Calls and Call Vertical spreads during this time if IV is high. However, when the market is at highs IV is often low. So I will hedge by buying some Put Spreads in the Indexes such as QQQ and SPY.

Option Trading in a Bear Market

Once we are in the Bear Market and/or near 52-week lows, I like to have more neutral and long or bullish positions. The chances that the best companies will go out of business is low. So we can be long and feel pretty secure since they are already low and likely won’t go too much lower.

Strangles and Iron Condors are great strategies to use since the stocks will also not likely skyrocket up at the beginning of a Bear Market.

Option Trading coming out of Bear Market

After we have been in a Bear market for a couple of years, we will likely start to emerge and enter another Bull Market. We don’t want to wait too long and being a little early is okay too. It is much better than waiting too long and missing moves up.

I like to sell Puts and Put Verticals (on higher priced stocks) as well as buy LEAPS in lower-priced stocks when coming out of a Bear Market.

Option Trading in a Bull Market

Bull Markets can last for 5-6 years on average. So we want to be invested during this time.

I like to buy LEAPS. This is a great way to get long exposure to stocks without having to put up all the capital.

At the same time, we can sell calls against the LEAPS. By doing this we are capping our gains but hitting singles consistently versus swinging for the fences. This is a way to pick up some extra income and lower our cost basis. It is like synthetic Covered Call that uses less capital.

I try to stay neutral to bullish by also selling strangles, iron condors and puts as the market is moving up during the bull market.

Alright guys, I hope this helps. Please remember to hit the like and subscribe buttons below as well as comment and let me know your thoughts on this video.

Thanks for watching and see you in the next one!