Explore visual guides to popular options strategies and learn how to implement them in your trading
Market Outlook:
Complexity:
Buying a call option gives you the right to purchase the underlying asset at the strike price before expiration.
Long Call Payoff
Net PositiveBreak-even
Strike Price
Components:
• Buy 1 Call
Max Profit:
Unlimited
Max Loss:
Limited to premium paid
Break Even:
Strike price + premium paid
Best Use:
When you expect a significant upward move in the underlying asset
Buying a put option gives you the right to sell the underlying asset at the strike price before expiration.
Long Put Payoff
Net PositiveBreak-even
Strike Price
Components:
• Buy 1 Put
Max Profit:
Limited to strike price - premium paid
Max Loss:
Limited to premium paid
Break Even:
Strike price - premium paid
Best Use:
When you expect a significant downward move in the underlying asset
Owning the underlying asset and selling a call option against it to generate income.
Covered Call Payoff
Net NegativeBreak-even
Strike Price
Components:
• Buy 100 Shares
• Sell 1 Call
Max Profit:
Limited to strike price - purchase price + premium received
Max Loss:
Limited to purchase price - premium received
Break Even:
Purchase price - premium received
Best Use:
When you own the stock and expect sideways or slightly bullish movement
Buying a call option and selling a higher strike call option with the same expiration date.
Bull Call Spread Payoff
Net NegativeBreak-even
Strike Price
Components:
• Buy 1 Call (lower strike)
• Sell 1 Call (higher strike)
Max Profit:
Limited to difference between strikes - net premium paid
Max Loss:
Limited to net premium paid
Break Even:
Lower strike + net premium paid
Best Use:
When you expect a moderate upward move in the underlying asset
Buying a put option and selling a lower strike put option with the same expiration date.
Bear Put Spread Payoff
Net NegativeBreak-even
Strike Price
Components:
• Buy 1 Put (higher strike)
• Sell 1 Put (lower strike)
Max Profit:
Limited to difference between strikes - net premium paid
Max Loss:
Limited to net premium paid
Break Even:
Higher strike - net premium paid
Best Use:
When you expect a moderate downward move in the underlying asset
Selling an out-of-the-money put spread and an out-of-the-money call spread with the same expiration date.
Iron Condor Payoff
Net NegativeBreak-even
Strike Price
Components:
• Sell 1 Put (middle-lower strike)
• Buy 1 Put (lowest strike)
• Sell 1 Call (middle-higher strike)
• Buy 1 Call (highest strike)
Max Profit:
Limited to net premium received
Max Loss:
Limited to difference between either spread - net premium received
Break Even:
Lower short strike - net premium received AND Higher short strike + net premium received
Best Use:
When you expect low volatility and a range-bound market
Combining a bull spread and a bear spread with a common middle strike price.
Butterfly Spread Payoff
Net PositiveBreak-even
Strike Price
Components:
• Buy 1 Call (lowest strike)
• Sell 2 Calls (middle strike)
• Buy 1 Call (highest strike)
Max Profit:
Limited to difference between adjacent strikes - net premium paid
Max Loss:
Limited to net premium paid
Break Even:
Lowest strike + net premium paid AND Highest strike - net premium paid
Best Use:
When you expect the underlying to be at the middle strike price at expiration
Buying a call and a put at the same strike price and expiration date.
Long Straddle Payoff
Net PositiveBreak-even
Strike Price
Components:
• Buy 1 Call
• Buy 1 Put (same strike)
Max Profit:
Unlimited
Max Loss:
Limited to total premium paid
Break Even:
Strike price + total premium paid OR Strike price - total premium paid
Best Use:
When you expect a large move in either direction but are unsure which way
Buying an out-of-the-money call and an out-of-the-money put with the same expiration date.
Long Strangle Payoff
Net PositiveBreak-even
Strike Price
Components:
• Buy 1 Call (OTM)
• Buy 1 Put (OTM)
Max Profit:
Unlimited
Max Loss:
Limited to total premium paid
Break Even:
Call strike + total premium paid OR Put strike - total premium paid
Best Use:
When you expect a large move in either direction but are unsure which way (cheaper than straddle)
Owning the underlying asset, buying a protective put, and selling a covered call.
Collar Payoff
Net NegativeBreak-even
Strike Price
Components:
• Buy 100 Shares
• Buy 1 Put
• Sell 1 Call
Max Profit:
Limited to call strike - purchase price + net premium
Max Loss:
Limited to purchase price - put strike + net premium
Break Even:
Purchase price + net premium (if net debit) OR Purchase price - net premium (if net credit)
Best Use:
When you want to protect a long stock position while generating some income
Options strategies are combinations of options positions that traders use to achieve specific risk/reward profiles. They can be used for speculation, income generation, or hedging existing positions.
• Call Option: Right to buy the underlying at the strike price
• Put Option: Right to sell the underlying at the strike price
• Premium: Price paid/received for an option
• Strike Price: Price at which the option can be exercised
• Expiration Date: Date after which the option becomes worthless
• Consider your market outlook (bullish, bearish, neutral)
• Assess your risk tolerance and account size
• Factor in implied volatility levels
• Match strategy complexity to your experience level
• Define your profit targets and stop-loss levels
Use our margin calculator to determine the capital requirements for different options strategies.
Options trading strategies are specific combinations of buying and selling options contracts to achieve particular risk/reward profiles. They can be used for income generation, speculation, or hedging existing positions.
A bull call spread is an options strategy that involves buying a call option at a specific strike price while simultaneously selling another call option at a higher strike price. This strategy is used when a trader expects a moderate rise in the price of the underlying asset.
An iron condor is an options strategy that involves selling an out-of-the-money put spread and an out-of-the-money call spread with the same expiration date. This strategy is used when a trader expects the underlying asset to remain within a specific price range.
For beginners, simpler strategies like covered calls, long calls, and long puts are often recommended. These strategies have more straightforward risk profiles and are easier to understand before moving to more complex multi-leg strategies.
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