options-strategies

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name: options-strategies description: > Comprehensive guide and execution framework for popular options trading strategies. Use when users ask to explain, set up, analyze, or compare options strategies including directional, neutral, volatility, and income-based plays.

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Options Strategies Skill

Overview

This skill provides structured knowledge and step-by-step execution guidance for the most popular options strategies — from basic single-leg trades to complex multi-leg spreads.

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Strategy Taxonomy

1. Directional Bullish Strategies

#### Long Call

Setup: Buy 1 call option

Max Profit: Unlimited

Max Loss: Premium paid

Breakeven: Strike + Premium

Best For: Strong bullish conviction with defined risk

Greeks: +Delta, +Vega, -Theta

#### Bull Call Spread (Debit Spread)

Setup: Buy lower strike call, Sell higher strike call (same expiry)

Max Profit: Width of spread - net debit

Max Loss: Net debit paid

Breakeven: Lower strike + net debit

Best For: Moderate bullish view, lower cost than long call

Greeks: +Delta (reduced), -Vega (reduced), -Theta (reduced)

#### Bull Put Spread (Credit Spread)

Setup: Sell higher strike put, Buy lower strike put (same expiry)

Max Profit: Net credit received

Max Loss: Width of spread - net credit

Breakeven: Higher strike - net credit

Best For: Moderately bullish, income generation, high probability trade

Greeks: +Delta, -Vega, +Theta

#### Cash-Secured Put

Setup: Sell a put, hold cash to cover assignment

Max Profit: Premium received

Max Loss: Strike price - premium (stock going to zero)

Breakeven: Strike - premium

Best For: Willing to own stock at a discount, income generation

#### Synthetic Long Stock

Setup: Buy ATM call, Sell ATM put (same strike, same expiry)

Max Profit: Unlimited

Max Loss: Substantial (like owning stock)

Best For: Bullish with less capital than buying stock

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2. Directional Bearish Strategies

#### Long Put

Setup: Buy 1 put option

Max Profit: Strike - Premium (stock to zero)

Max Loss: Premium paid

Breakeven: Strike - Premium

Best For: Strong bearish conviction, portfolio hedging

Greeks: -Delta, +Vega, -Theta

#### Bear Put Spread (Debit Spread)

Setup: Buy higher strike put, Sell lower strike put (same expiry)

Max Profit: Width of spread - net debit

Max Loss: Net debit paid

Breakeven: Higher strike - net debit

Best For: Moderate bearish view, lower cost than long put

#### Bear Call Spread (Credit Spread)

Setup: Sell lower strike call, Buy higher strike call (same expiry)

Max Profit: Net credit received

Max Loss: Width of spread - net credit

Breakeven: Lower strike + net credit

Best For: Moderately bearish, income generation

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3. Neutral / Range-Bound Strategies

#### Iron Condor

Setup:

- Sell OTM call + Buy further OTM call (bear call spread) - Sell OTM put + Buy further OTM put (bull put spread) - All same expiry

Max Profit: Total net credit received

Max Loss: Width of wider wing - total credit

Breakeven: Two breakevens (upper and lower)

Best For: Low volatility expected, range-bound market

Greeks: -Delta (near zero), -Vega, +Theta

#### Iron Butterfly

Setup:

- Sell ATM call + Buy OTM call - Sell ATM put + Buy OTM put - ATM strikes are the same (body)

Max Profit: Net credit (at expiry at body strike)

Max Loss: Wing width - net credit

Best For: Very tight range expected around current price, higher credit than condor

#### Short Straddle

Setup: Sell ATM call + Sell ATM put (same strike, same expiry)

Max Profit: Total premium received

Max Loss: Unlimited (on call side)

Breakeven: Strike ± total premium

Best For: Very low volatility expected — high risk, requires margin

Greeks: -Vega (strong), +Theta (strong), near-zero Delta

#### Short Strangle

Setup: Sell OTM call + Sell OTM put (different strikes, same expiry)

Max Profit: Total premium received

Max Loss: Unlimited (on call side)

Breakeven: Call strike + premium / Put strike - premium

Best For: Low volatility, wider profit zone than short straddle, still high risk

#### Covered Call

Setup: Own 100 shares + Sell 1 OTM call

Max Profit: (Call strike - stock cost) + premium

Max Loss: Stock price - premium paid (stock goes to zero)

Best For: Income generation on existing stock, mildly bullish to neutral

Greeks: -Delta (capped), +Theta

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4. Volatility Strategies (Volatility Long)

#### Long Straddle

Setup: Buy ATM call + Buy ATM put (same strike, same expiry)

Max Profit: Unlimited

Max Loss: Total premium paid

Breakeven: Strike ± total premium

Best For: Big move expected but direction unknown (earnings, events)

Greeks: Near-zero Delta, +Vega (strong), -Theta (strong)

#### Long Strangle

Setup: Buy OTM call + Buy OTM put (different strikes, same expiry)

Max Profit: Unlimited

Max Loss: Total premium paid (less than straddle)

Breakeven: Wider than straddle

Best For: Big move expected, cheaper than straddle, needs larger move to profit

#### Long Guts

Setup: Buy ITM call + Buy ITM put

Best For: Rare; similar to straddle but higher premium, narrower loss zone

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5. Advanced / Multi-Leg Strategies

#### Calendar Spread (Time Spread)

Setup: Sell near-term option, Buy same-strike far-term option

Max Profit: When stock at strike at near-term expiry

Max Loss: Net debit paid

Best For: Low near-term volatility, higher implied vol in back month

Greeks: +Vega, +Theta (net positive theta from near-term short)

#### Diagonal Spread

Setup: Sell near-term option, Buy far-term option at different strike

Max Profit: Variable

Best For: Directional bias with theta decay benefit

#### Ratio Spread (Call Ratio / Put Ratio)

Setup: Buy 1 option, Sell 2 options at higher/lower strike (same expiry)

Max Profit: Selling strike area

Max Loss: Can be unlimited on uncovered side

Best For: Directional with expectation of limited move; advanced traders only

#### Butterfly Spread

Setup:

- Buy 1 low strike, Sell 2 middle strikes, Buy 1 high strike - All same expiry, equidistant strikes

Max Profit: At middle strike at expiry

Max Loss: Net debit

Best For: Precise target price with minimal risk

#### Jade Lizard

Setup: Sell OTM put + Sell OTM call spread (bear call spread)

Max Profit: Total credit received (no upside risk if credit > call spread width)

Max Loss: Put strike - total credit (downside)

Best For: Bullish to neutral, eliminates upside risk

#### Broken Wing Butterfly

Setup: Standard butterfly with unequal wing widths

Best For: Directional bias with defined risk on one side, potential credit received

#### PMCC (Poor Man's Covered Call)

Setup: Buy deep ITM long-dated call (LEAPS), Sell near-term OTM call

Best For: Simulates covered call at fraction of capital

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Decision Framework: Which Strategy to Use?

Market Outlook
├── Strongly Bullish
│   ├── High conviction → Long Call
│   ├── Defined risk/reward → Bull Call Spread
│   └── Own stock → Covered Call (slight upside only)
│
├── Moderately Bullish
│   ├── Income focus → Bull Put Spread (credit)
│   └── Capital efficient → Bull Call Spread (debit)
│
├── Neutral / Sideways
│   ├── Low volatility expected
│   │   ├── Wide range → Iron Condor
│   │   ├── Tight range → Iron Butterfly / Short Straddle
│   │   └── Income on stock → Covered Call
│   └── Elevated IV → Sell premium (straddle, condor)
│
├── Moderately Bearish
│   ├── Income focus → Bear Call Spread (credit)
│   └── Capital efficient → Bear Put Spread (debit)
│
├── Strongly Bearish
│   ├── High conviction → Long Put
│   └── Hedging portfolio → Long Put / Bear Put Spread
│
└── Big Move Expected (No Direction)
    ├── High conviction → Long Straddle
    └── Lower cost → Long Strangle

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Greeks Quick Reference

| Greek | Meaning | Long Options | Short Options | |-------|---------|-------------|--------------| | Delta | Price sensitivity to underlying | + (calls) / - (puts) | Opposite | | Gamma | Rate of delta change | + | - | | Theta | Time decay per day | Negative (hurts you) | Positive (helps you) | | Vega | Sensitivity to IV change | + (benefits from IV rise) | - (hurt by IV rise) | | Rho | Sensitivity to interest rates | Minor for most retail trades | Minor |

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Key Metrics to Evaluate Any Strategy

1. Max Profit — What's the best case? 2. Max Loss — What's the worst case? 3. Breakeven(s) — Where must the stock be to not lose money? 4. Probability of Profit (POP) — Statistical likelihood of making money 5. Risk/Reward Ratio — Max profit ÷ Max loss 6. Days to Expiration (DTE) — Optimal DTE per strategy 7. Implied Volatility (IV) Rank — Is IV high (sell premium) or low (buy premium)?

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IV Rank Guide

| IV Rank | Strategy Preference | |---------|-------------------| | < 20 | Buy premium (long straddle, long calls/puts) | | 20–40 | Neutral, directional debit spreads | | 40–60 | Credit spreads, iron condors | | > 60 | Sell premium (short straddle, strangle, iron condor) |

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Optimal DTE by Strategy Type

| Strategy | Typical DTE | |----------|------------| | Short premium (condor, straddle) | 30–45 DTE | | Long premium (straddle, calls) | 60–90 DTE | | Calendar spread | Near: 7–14 DTE / Far: 30–60 DTE | | LEAPS strategies | 6–24 months | | Earnings plays | 1–7 DTE |

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Output Format

When presenting a strategy analysis, always include:

1. Strategy Name & Setup (exact legs with strikes, expiry) 2. Cost / Credit (net debit or net credit) 3. Max Profit / Max Loss / Breakeven(s) 4. Probability of Profit (if calculable) 5. Ideal Market Scenario 6. Risk Considerations 7. Adjustment Ideas (if trade goes wrong)

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Common Adjustments

| Position Going Wrong | Adjustment | |---------------------|-----------| | Long call losing | Roll down or out, convert to spread | | Short put being tested | Roll down and out to collect more credit | | Iron condor — one side tested | Roll untested side toward price (inversion); or close | | Long straddle not moving | Convert to directional by closing one leg | | Covered call in-the-money | Roll call up and out for credit |