Options Trading Strategies
From basic to advanced multi-leg strategies for every market condition
Basic Options Strategies
Long Call
Setup: Buy call option
Max Profit: Unlimited
Max Loss: Premium paid
Breakeven: Strike + premium
When to use: Expecting significant upward move
Example: Buy AAPL $150 call for $2.50
Long Put
Setup: Buy put option
Max Profit: Strike - premium (to zero)
Max Loss: Premium paid
Breakeven: Strike - premium
When to use: Expecting significant downward move
Example: Buy SPY $400 put for $3.00
Covered Call
Setup: Own 100 shares + sell call
Max Profit: Premium + (strike - stock price)
Max Loss: Stock price - premium
Breakeven: Stock price - premium
When to use: Generate income on holdings
Example: Own 100 MSFT, sell $300 call
Cash-Secured Put
Setup: Sell put with cash to cover
Max Profit: Premium received
Max Loss: Strike - premium
Breakeven: Strike - premium
When to use: Want to buy stock at discount
Example: Sell TSLA $200 put for $5.00
Spread Strategies
Bull Call Spread
BullishSetup: Buy call + sell higher call
Max Profit: Spread width - net debit
Max Loss: Net debit paid
Breakeven: Lower strike + net debit
When: Moderately bullish, reduce cost
Greeks: Positive delta, negative theta
Bear Put Spread
BearishSetup: Buy put + sell lower put
Max Profit: Spread width - net debit
Max Loss: Net debit paid
Breakeven: Higher strike - net debit
When: Moderately bearish, reduce cost
Greeks: Negative delta, negative theta
Bull Put Spread
BullishSetup: Sell put + buy lower put
Max Profit: Net credit received
Max Loss: Spread width - net credit
Breakeven: Short strike - net credit
When: Bullish, collect premium
Greeks: Positive delta, positive theta
Bear Call Spread
BearishSetup: Sell call + buy higher call
Max Profit: Net credit received
Max Loss: Spread width - net credit
Breakeven: Short strike + net credit
When: Bearish, collect premium
Greeks: Negative delta, positive theta
Advanced Multi-Leg Strategies
Iron Condor
NeutralSetup: Bull put spread + bear call spread
Max Profit: Net credit received
Max Loss: Spread width - net credit
Management: Close at 25-50% profit
Ideal IV: High IV rank (>50)
Adjustment: Roll untested side
Iron Butterfly
NeutralSetup: ATM short straddle + OTM long strangle
Max Profit: Net credit received
Max Loss: Strike width - net credit
Management: Close at 25% profit
Ideal IV: Very high IV
Adjustment: Convert to iron condor
Calendar Spread
NeutralSetup: Sell near-term + buy far-term same strike
Max Profit: At short strike at expiration
Max Loss: Net debit paid
Management: Roll short strike forward
Ideal IV: Low IV, expecting increase
Adjustment: Convert to diagonal
Diagonal Spread
DirectionalSetup: Calendar with different strikes
Max Profit: Varies with strikes
Max Loss: Net debit paid
Management: Manage like covered call
Ideal IV: Rising IV environment
Adjustment: Roll strikes as needed
Butterfly Spread
NeutralSetup: Buy 1, sell 2, buy 1 (same gaps)
Max Profit: Strike width - net debit
Max Loss: Net debit paid
Management: Hold to expiration usually
Ideal IV: Low cost, high probability
Adjustment: Convert to condor
Jade Lizard
BullishSetup: Short put + short call spread
Max Profit: Net credit received
Max Loss: Put strike - net credit
Management: No upside risk if done right
Ideal IV: High IV environment
Adjustment: Close winning side
Volatility Strategies
Long Straddle
Volatility LongSetup: Buy ATM call + put
When: Expecting big move, direction unknown
Risk: Time decay if no movement
Long Strangle
Volatility LongSetup: Buy OTM call + put
When: Expecting huge move, cheaper than straddle
Risk: Needs larger move to profit
Short Straddle
Volatility ShortSetup: Sell ATM call + put
When: Expecting no movement
Risk: Unlimited risk both sides
Short Strangle
Volatility ShortSetup: Sell OTM call + put
When: Range-bound market expected
Risk: Unlimited risk, margin intensive
Strategy Selection Criteria
| Factor | When Selling Premium | When Buying Options | Why It Matters |
|---|---|---|---|
| Implied Volatility | High IV rank (>50) | Low IV rank (<30) | Mean reversion of volatility |
| Time to Expiration | 30-45 DTE optimal | 60+ DTE for time | Theta decay acceleration |
| Strike Selection | 16-30 delta for credit | 40-60 delta for directional | Probability vs premium balance |
| Liquidity | Tight bid-ask spreads | High open interest | Easy entry and exit |
Position Management Rules
Profit Taking
- • Credit spreads: Close at 50% profit
- • Iron condors: Close at 25-35% profit
- • Calendars: Close at 25% profit
- • Debit spreads: Close at 75% max profit
- • Never hold to expiration unless ITM
Loss Management
- • Set stop at 2x credit received
- • Roll tested side at 21 DTE
- • Convert losing trades if possible
- • Size down in drawdowns
- • Never add to losing positions
Greeks by Strategy Type
Directional Strategies
Focus on Delta
- • Long calls/puts: +Delta
- • Spreads: Reduced delta
- • Monitor gamma risk
Income Strategies
Focus on Theta
- • Credit spreads: +Theta
- • Covered calls: +Theta
- • Manage at 21 DTE
Volatility Strategies
Focus on Vega
- • Long options: +Vega
- • Short options: -Vega
- • IV rank critical