Option Strategies
Combine calls and puts to construct specific price outcomes. Option strategies give you the flexibility to profit from rising, falling and directionless markets.
Bullish strategies
Profit from a Rising Market
Long Call Option →
Short Put Option →
Long Synthetic →
Call Backspread →
Call Bull Spread →
Put Bull Spread →
Covered Call →
Protective Put →
Collar →
Bearish strategies
Profit from a Falling Market
Short Call Option →
Long Put Option →
Short Synthetic →
Put Backspread →
Call Bear Spread →
Put Bear Spread →
Market neutral strategies
Profit in a Sideways Market
Iron Condor →
Long Straddle →
Short Straddle →
Long Strangle →
Short Strangle →
Long Guts →
Short Guts →
Call Time Spread →
Put Time Spread →
Call Ratio Vertical Spread →
Put Ratio Vertical Spread →
Long Call Butterfly →
Short Call Butterfly →
Long Put Butterfly →
Double Calendar →
About Option Strategies
Generally, an option strategy involves the simultaneous purchase and/or sale of different option contracts, also known as an option combination. There is such a wide variety of option strategies that use multiple legs as their structure, however, even a one legged Long Call Option can be viewed as an option strategy.
But what if you bought a call and a put option at the same strike price in the same expiry month? How could a trader profit from such a scenario? This is called a Long Straddle — one of the most popular market neutral strategies.
In this example, imagine you bought 1 $40 July call option and also bought 1 $40 July put option. With the underlying trading at $40, the call costs $1.14 and the put costs $1.14 also — a total outlay of $228, which is your maximum loss.
If the market rallies, the call option becomes increasingly profitable while the put expires worthless. If the market sells off, the put becomes profitable while the call expires worthless. Either way, as long as the move is large enough to exceed the $228 cost, you profit.
This is just one example of an option combination. There are many different ways to combine option contracts together — and also with the underlying asset — to customise your risk/reward profile.
For further analysis tools, take a look at the Volcone Analyzer — it analyses any option contract and compares it against historical averages, helping you decide whether to buy or sell.
105 Comments
Arul August 1st, 2011 at 7:02am
what is in the money call & put?
Peter May 12th, 2011 at 11:05pm
Hi spinnerrobert, yes, you can exit an option position at any time prior to the expiraton date.
Peter May 12th, 2011 at 11:04pm
Hi Azaragoza, you can check out my option pricing spreadsheet for the formula.
spinnerrobert May 12th, 2011 at 8:29pm
My qestion is let say i own akam and buy option for either put or call. I want to sell it right after i purchase the contract let say within one hour. Is that allow?
azaragoza May 5th, 2011 at 3:15pm
what is the formula you use to optain the PnL charts, do you have an example?
Peter February 28th, 2011 at 3:05am
Hi Jai, it really depends on what market you're looking at and what your view is of this market i.e is it trending upwards, is there a lot of volatility etc?
That's what's great about options - the strategies vary according to lots of factors.
Jai February 24th, 2011 at 11:14pm
hi
Would you tell which are the best available statergies in the option market now
S.Vivek February 7th, 2011 at 4:48am
can you tell me short on options and how its works ?
UOG December 13th, 2010 at 1:26pm
Hello, I think your blog is epic. Congrats.
Peter December 7th, 2010 at 1:25am
You'd need to check with your if they can provide this service. I know that Interactive Brokers provide an API to plug external systems into that operates over the Internet.
Add a Comment