The Asian session has developed into a large market with many stocks and options available for traders to take advantage of. Yet, due to its size and growth, this session can also become very crowded, resulting in fewer opportunities compared to other time zones.
Trading during this period can be pretty challenging as it is usually filled with seasoned veterans from both sides of the Pacific. To counter these challenges and uncover some excellent trading opportunities, here are three options strategies perfect for both directional and range bound plays.
Bull Put Spread
When trading the Asian session, one does not have much room for error or margin of protection due to higher volatility due to crowded conditions. This is why the Bull Put Spread is one of my favourite options strategies for this time zone.
The idea behind this strategy is to find an overpriced stock that is range-bound or trending down, then sell a lower strike price put option and simultaneously purchase a higher strike price put option. If the underlying asset falls in value quickly, both puts will be exercised at their respective strike prices, which results in profit on the spread. This profit can be realized quickly as only one side of the trade needs to be executed.
However, if the underlying asset moves sideways or begins to rise, the sold put expires unexercised, and you retain ownership of it until expiration. This position turns into a profitable long call position at expiry, where premiums are received on both options.
To summarize, in an Asian session, Bear Put Spread would be looking for a range-bound or falling underlying asset, with the expectation that it falls in value quickly at any moment. But if this does not happen and prices do not move lower, you will end up owning an option that will most likely expire worthlessly. This means you can keep your premium received on the sold put, which acts as the main profit of this strategy.
Bull Call Spread
The second options strategy is similar to the first, except instead of selling a lower strike price put option, I am selling a higher striking price call option alongside buying another higher striking price call option. I sell more calls due to market conditions during this session, which can be very volatile. The idea is to give yourself a better chance of winning the directionality of the move.
If prices do fall in value, both call options will be exercised at their respective strike prices, and you retain ownership of the associated put option from your initial trade. This results in a short term directional play where if the momentum continues, you can take advantage quickly as one side of the trade only needs to be executed.
However, if prices begin moving higher, both sold calls expire unexercised, and this position turns into a profitable long call spread (the difference between strikes minus premium paid). To summarize, with an Asian session Bull Call Spread, you are selling an overpriced option with room to fall in price while simultaneously buying a lower striking price option.
Bear Put Spread vs Bull Call Spread
The last strategy combined the above strategies by selling a higher striking price put option while simultaneously buying a higher striking price call option. Either of these options can be bought or sold depending on which direction you expect the underlying asset to move in.
This creates an exciting volatility play that hedges directional risk for these two trades. If one part of the trade occurs, it generates premium received; however, if neither of them occurs, you keep both premiums received as profit.
New traders are advised to use an experienced and reputable online broker from Saxo Bank and trade on a demo account before investing their money in options.