Directional Trading Strategies

In most markets, there are only two ways to profit: by either buying or selling some underlying asset. To profit, you have to predict correctly which direction the market will take and when. With options, you can also profit from correctly predicting market direction, but, in addition, you also can gain from changes in the perceptions of risk, and from the passage of time. Furthermore, options allow you to arbitrage price discrepancies easily and completely. In this chapter, we will emphasize directional trading strategies that can be used with options on Bund futures, while we will cover volatility strategies and arbitrage in later chapters.