Option Strategies


Selling Options           Buying Options          Option Greeks


Bullish Market Strategies

Option Strategy Description Reason to use When to use
Buy a call Strongest bullish option position. Loss limited to premium. Undervalued option with volatility increasing.
Sell a put Neutral bullish option position. Collect premium. Large credit bullish market. High or increasing volatility.
Vertical Bull Calls Buy call, sell call of higher strike price. Loss limited to net debt. Small debit, bullish market.
Vertical Bull Puts Buy put, sell put of higher strike price. Loss limited to price difference minus credit. Large credit, bullish market.

Bearish Market Strategies

Option Strategy Description Reason to use When to use
Buy a put Strongest bearish option position. Loss limited to premium. Undervalued option with volatility increasing.
Sell a call Neutral bearish option position. Collect premium. Option overvalued, market flat, bearish.
Vertical Bear Puts Buy at the money put, sell out of the money put. Loss limited to debit. Small debit, bearish market.
Vertical Bear Calls Sell call, buy call of higher strike price. Loss limited to strike price differnce minu credit. Large credit, bearish market.

Neutral Market Strategies

Option Strategy Description Reason to use When to use
Strangle Sell out fo the money put and call. Maximum use of time value decay. Trading range market w/ volatility peaking.
Butterfly Buy at the money call (put), sell 2 out of the money calls (puts), and buy farther out of the money call (put). Profit certain if done at credit. Any time credit received.
Calender Sell near month, buy far month, same strike price. Near month time value decays faster. Small debit, trading range market.
Box Sell calls and puts same strike price. Profit certain if done at credit. Any time credit received.
Ratio Buy call, sell calls of higher strike price. Neutral, slightly bullish. Large credit and difference between strike prices of options bought and sold.
Conversion Buy futures, buy at the money put and sell out of the money call. Profit certain if done at credit. Any time credit received.

Special Market Situations

Option Strategy Description Reason to use When to use
Straddle Purshase Buy put and call at or near the money. One option will go in the money. Options under-valued and market likely to make a big move.
Covered call Buy future, sell call. Collect premium on calls sold. Neutral, slightly bullish.
Covered puts Sell future, sell put. Collect premium on uts sold. Neutral, slightly bearish.
Synthetic futures position. Buy call (put), sell put (call). Neutral, slightly trending market. When the net positions is better than futures.