Option Strategies

Buying a call option gives the right to buy the underlying asset at a fixed price before expiration.

When to use: Strong bullish move expected.

Risk / Reward: Limited risk, unlimited reward.

Setup: Buy 1 call option.

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Selling a call option obligates the seller to sell the underlying asset if exercised.

When to use: Price expected to stay below the strike.

Risk / Reward: Limited reward, unlimited risk.

Setup: Sell 1 call option.

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Buying a put option gives the right to sell the underlying asset at a fixed price before expiration.

When to use: Strong bearish move expected.

Risk / Reward: Limited risk, high reward.

Setup: Buy 1 put option.

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Selling a put option obligates the seller to buy the underlying asset if exercised.

When to use: Price expected to stay above the strike.

Risk / Reward: Limited reward, large downside risk.

Setup: Sell 1 put option.

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A vertical spread using two options of the same type and expiration to profit from a moderate upward move.

When to use: Moderate upward price movement.

Risk / Reward: Limited risk and limited reward.

Setup: Buy lower-strike option, sell higher-strike option.

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A vertical spread using two options of the same type and expiration to profit from a moderate downward move.

When to use: Moderate downward price movement.

Risk / Reward: Limited risk and limited reward.

Setup: Sell lower-strike option, buy higher-strike option.

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Buying a call and a put at the same strike and expiration to profit from large price moves.

When to use: High volatility with a large move in either direction.

Risk / Reward: Limited risk, large reward if volatility is high.

Setup: Buy 1 call and 1 put at the same strike.

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Selling a call and a put at the same strike and expiration to profit from low volatility.

When to use: Low volatility and stable price.

Risk / Reward: Limited reward, very high risk.

Setup: Sell 1 call and 1 put at the same strike.

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Buying an out-of-the-money call and put to profit from large price swings at a lower cost than a straddle.

When to use: High volatility with a large move.

Risk / Reward: Limited risk, requires large move.

Setup: Buy OTM call and OTM put.

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Selling an out-of-the-money call and put to profit from price stability within a wide range.

When to use: Price remains within a wide range.

Risk / Reward: Limited reward, high risk.

Setup: Sell OTM call and OTM put.

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A volatility strategy with a bullish bias using more calls than puts.

When to use: Large move with bullish bias.

Risk / Reward: Limited risk, higher upside sensitivity.

Setup: Buy 2 calls and 1 put at the same strike.

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A volatility strategy with a bearish bias using more puts than calls.

When to use: Large move with bearish bias.

Risk / Reward: Limited risk, higher downside sensitivity.

Setup: Buy 1 call and 2 puts at the same strike.

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A ratio spread that profits from strong upward moves with increasing volatility.

When to use: Explosive upward movement.

Risk / Reward: Small limited loss, large upside potential.

Setup: Sell 1 call, buy 2 higher-strike calls.

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A ratio spread that profits from strong downward moves with increasing volatility.

When to use: Explosive downward movement.

Risk / Reward: Small limited loss, large downside potential.

Setup: Sell 1 put, buy 2 lower-strike puts.

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A neutral strategy designed to profit if price finishes near a specific target.

When to use: Low volatility and price near a target.

Risk / Reward: Limited risk, maximum profit at middle strike.

Setup: Buy 1 lower strike, sell 2 middle strikes, buy 1 higher strike.

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The inverse of a long butterfly, profiting from large price movements.

When to use: High volatility and breakout.

Risk / Reward: Limited risk, profits from large moves.

Setup: Sell outer strikes, buy middle strikes.

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A neutral range-bound strategy with a wider profit zone than a butterfly.

When to use: Low volatility within a defined range.

Risk / Reward: Limited risk, moderate reward within range.

Setup: Buy outer strikes, sell inner strikes.

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The inverse of a long condor, profiting from strong price movements.

When to use: High volatility and strong movement.

Risk / Reward: Limited risk, profits from strong moves.

Setup: Sell outer strikes, buy inner strikes.

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