DEFINITION of 'Bullet Trade'

The act of purchasing an "in the money" put option so that the buyer can capitalize on a bear market by effectively shorting a stock without waiting for an uptick.

BREAKING DOWN 'Bullet Trade'

This is a strategy commonly used by investors that wish to capitalize on a falling market. Due to short sale rules by different exchanges, investors may be delayed in shorting a position because of continuously declining markets. An immediate alternative for creating the short strategy is to buy a put option.

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RELATED FAQS
  1. What kinds of restrictions does the SEC put on short selling?

    Learn about the rules and regulations on short selling enforced by the U.S. Securities and Exchange Commission, or SEC, including ... Read Answer >>
  2. How do you use put options to profit from a bear market?

    Learn how traders use put options in their trading strategies to remain profitable, even in a bear market. Everyday investors ... Read Answer >>
  3. What's the difference between a long and short position in the market?

    Understand long and short positions for stocks and option contracts; combine long and short positions for added leverage ... Read Answer >>
  4. What risks should I consider taking a short put position?

    Learn what risks to consider before taking a short put position. Shorting puts is a great strategy to earn income in certain ... Read Answer >>
  5. Can you short sell ETFs?

    ETFs (an acronym for exchange-traded funds) are treated like stock on exchanges; as such, they are also allowed to be sold ... Read Answer >>
  6. What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being ... Read Answer >>
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