Options Strategies Reference
Complete guide to 31 options strategies — from basic directional bets to advanced multi-leg income structures. Each strategy includes setup rules, P&L profile, and real-world examples.
Beginner Strategies
📗 BeginnerDefinition
Buying a call option gives you the right to buy 100 shares of the underlying stock at the strike price before expiration.
When to Use
- Expect the stock to rise significantly above the strike price
- Want leveraged upside with limited downside
- Before positive catalysts (earnings, FDA, product launch)
Setup
Buy 1 Call at desired strike price and expiration
Why Use It
- Max loss limited to premium paid
- Unlimited profit potential as stock rises
- Leverage: control 100 shares cheaply
Breakeven: $108 | Max Loss: $300 | If stock hits $120: Profit = $1,200
Definition
Buying a put option gives you the right to sell 100 shares at the strike price before expiration. Profit as the stock falls.
When to Use
- Expect the stock to drop significantly below the strike
- Portfolio insurance for long stock positions
- Before negative catalysts (bad earnings, regulatory issues)
Setup
Buy 1 Put at desired strike price and expiration
Why Use It
- Profit from downside without short selling
- No borrowing fees, no unlimited risk like a short
- Acts as portfolio insurance
Breakeven: $92.50 | Max Loss: $250 | If stock drops to $80: Profit = $1,250
Definition
Selling a put obligates you to buy 100 shares at the strike price if exercised. You collect premium upfront and must keep cash to buy shares if assigned.
When to Use
- Want to buy a stock at a discount to current price
- Believe stock will stay above the strike price
- In high IV environments for rich premium
- Income generation on stocks you want to own
Setup
Sell 1 Put at desired strike + hold cash equal to (strike × 100) to cover assignment
Why Use It
- Collect premium income immediately
- Theta (time decay) works for you daily
- High probability of profit with OTM strikes
Definition
Own 100 shares of stock and sell a call option against them. The sold call is "covered" by your stock position — you generate income but cap your upside.
When to Use
- Own stock and want to generate additional income
- Expect stock to trade sideways or slightly higher
- Willing to sell shares at the strike price
Setup
Own 100 shares + Sell 1 Call at a strike above current price
Why Use It
- Generate income from stocks you already own
- Reduces effective cost basis of the stock
- Partial downside protection (premium offsets losses)
Definition
Own 100 shares + buy a put option as insurance. The put creates a floor on your downside while maintaining unlimited upside. Also called a "married put."
When to Use
- Own stock and want downside insurance without selling
- Before uncertain events (earnings, elections)
- Protecting concentrated or large stock positions
Setup
Own 100 shares + Buy 1 Put at desired strike (floor price)
Why Use It
- Hard floor on downside loss
- Maintains full upside participation
- Better than stop-loss — no gap risk
Definition
Sell a higher strike put + buy a lower strike put at the same expiration. Receive a net credit. Profit when the stock stays above the short put strike.
When to Use
- Moderately bullish on the stock
- Want defined-risk income strategy
- High IV environments for richer credits
Setup
Sell 1 Put (higher strike) + Buy 1 Put (lower strike), same expiration
Why Use It
- Theta positive — time decay earns money
- Defined max loss known upfront
- Profitable in 3 scenarios: up, flat, or slightly down
Max Profit: $150 | Max Loss: $350 | Breakeven: $93.50
Definition
Sell a lower strike call + buy a higher strike call at the same expiration. Receive a net credit. Profit when stock stays below the short call strike.
When to Use
- Moderately bearish on the stock
- After a stock run-up expecting resistance
- Defined-risk bearish income strategy
Setup
Sell 1 Call (lower strike) + Buy 1 Call (higher strike), same expiration
Why Use It
- Profit when stock drops, stays flat, or rises slightly
- IV crush benefits you (after events)
- Theta positive — earns money daily
Definition
Buy a lower strike call + sell a higher strike call at the same expiration. Pay a net debit. Profit when stock rises toward or beyond the short strike.
When to Use
- Moderately bullish with a specific price target
- High IV makes outright calls too expensive
- Want defined risk with lower cost than long call
Setup
Buy 1 Call (lower strike) + Sell 1 Call (higher strike), same expiration
Why Use It
- Cheaper than buying calls outright
- Defined risk — max loss is the debit paid
- Partially offsets theta and vega risk
Max Profit: $700 | Max Loss: $300 | Breakeven: $103
Definition
Buy a higher strike put + sell a lower strike put at the same expiration. Pay a net debit. Cheaper than buying a put outright with capped downside profit.
When to Use
- Moderately bearish with a specific downside target
- High IV makes outright puts expensive
- Defined-risk bearish bet
Setup
Buy 1 Put (higher strike) + Sell 1 Put (lower strike), same expiration
Why Use It
- Cheaper than buying puts outright
- Good risk/reward for moderate bearish moves
- Reduced impact of IV changes vs long put
Intermediate Strategies
📙 IntermediateDefinition
Selling a call option without owning the underlying shares. Collect premium but face unlimited loss if the stock rises sharply.
When to Use
- High confidence stock will not rise above the strike
- Very high IV environments for rich premium
- Advanced traders with active risk management only
Buy a call and sell a put at the same strike and expiration. Mimics the P&L of owning 100 shares with less capital. Use when you want stock-like exposure without buying the stock outright.
Buy a put and sell a call at the same strike and expiration. Mimics shorting 100 shares — use when shares are hard to borrow or have high borrow fees. Unlimited upside risk.
Buy an OTM call and sell an OTM put (bullish) or vice versa (bearish). Creates directional exposure at minimal or zero net cost. Use for strong directional conviction or as a hedge on existing stock positions.
Definition
Sell an OTM put spread + sell an OTM call spread simultaneously. Profit when the stock stays within the range of the two short strikes through expiration.
When to Use
- Expect stock to trade in a range (sideways)
- After a big move when IV is elevated (capture IV crush)
- As a consistent income strategy on indices (SPY, QQQ)
Setup
Sell OTM Put + Buy further OTM Put + Sell OTM Call + Buy further OTM Call (all same expiration)
Why Use It
- Double theta decay — both spreads earn daily
- High probability of profit with wide strikes
- Defined risk on both sides
Sell $95P / Buy $90P ($1.00 credit) + Sell $105C / Buy $110C ($1.00 credit)
Total Credit: $2.00 | Max Loss: $3.00 | Profit zone: $93–$107
Definition
Buy 1 lower strike + sell 2 middle strikes + buy 1 upper strike (all calls or all puts). Maximum profit when stock pins exactly at the middle strike at expiration.
When to Use
- Expect stock to be at a specific price at expiration
- Low-cost defined-risk bet with high reward-to-risk
- Precise price target (e.g. pinning at support/resistance)
Setup
Buy 1 Call (low) + Sell 2 Calls (mid) + Buy 1 Call (high) — equidistant strikes
Why Use It
- Very cheap to enter
- Extremely high reward-to-risk if stock pins at middle
- Defined max loss is just the debit paid
Own 100 shares + buy a protective put + sell a covered call. The call premium offsets the put cost making it near zero-cost protection. Defines a range of outcomes — you know exactly your max gain and loss.
A butterfly spread where the lower wing is wider than the upper wing, creating a net credit or small debit. Slightly bullish. Use when you want a more favorable skewed risk/reward vs a standard butterfly with potential to collect credit.
Butterfly spread using calls where the upper wing is wider than the lower wing. Slightly bearish. Skewed risk/reward with potential credit entry. Useful for directional trades where you want to be paid to enter.
Sell a near-term option and buy a longer-term option at the same strike. Profit from the difference in time decay rates — near-term decays faster. Use when you expect the stock to stay near the strike in the short term but may move later. Benefits from rising IV on the back month.
Buy a deep ITM long-dated call (LEAP) and sell shorter-term OTM calls against it. Mimics covered calls without buying 100 shares. Ideal for high-priced stocks (AMZN, GOOGL). The LEAP has high delta so it behaves like stock. Much less capital required — higher % return on capital.
Buy a deep ITM long-dated put (LEAP) and sell shorter-term OTM puts against it. Bearish version of PMCC. Capital-efficient bearish income strategy — collect premium without needing to short 100 shares.
Advanced Strategies
📕 AdvancedDefinition
Sell an OTM call and an OTM put simultaneously. Profit when the stock stays between the two short strikes. Maximum premium collection with undefined risk on both sides.
When to Use
- Strong conviction stock will trade in a range
- Very high IV environments (post-earnings IV crush)
- Experienced traders comfortable with managing risk
Sell an ATM call and ATM put at the same strike. Maximum possible premium for any 2-option strategy. Highest theta benefit since ATM options decay fastest. Use when expecting the stock to pin near the strike at expiration.
Buy 1 higher strike put + sell 2 (or more) lower strike puts. Credit or small debit entry. Use when neutral to slightly bullish with expectation of low volatility. Profits from premium collection and IV contraction, but has unlimited downside risk below the lower short strike.
Buy 1 lower strike call + sell 2 (or more) higher strike calls. Credit or small debit entry. Neutral to slightly bearish. Unlimited risk above the higher short strikes. Profits from premium and IV contraction.
For a losing stock position: Buy 1 ATM call + sell 2 OTM calls (1×2 spread) at zero cost. Lowers your breakeven significantly without adding more capital. Use when underwater on a stock — better than averaging down. The sold calls cap your upside but bring your breakeven down by half the distance to the sold strikes.
Two calendar spreads at different strikes — one OTM call calendar + one OTM put calendar. Wider profit zone than a single calendar. Use when you expect the stock to trade in a range but are unsure of direction. Profitable as long as stock stays between the two calendar strikes.
Definition
Buy an OTM call + buy an OTM put simultaneously. Profit when the stock makes a large move in either direction. Cheaper than a straddle but requires a bigger move.
When to Use
- Expect a big move but don't know the direction
- Before binary events (earnings, FDA, court rulings)
- When IV is low and you expect it to spike
Definition
Buy an ATM call + ATM put at the same strike. Maximum sensitivity to price movement — profits from any large move. More expensive than a strangle but lower breakeven distance.
When to Use
- Expect a large move but completely unsure of direction
- Before major events (FOMC, elections, mega-cap earnings)
- When IV is unusually low (cheap options)
Breakevens: $92 and $108 | Profit if stock moves more than 8% in either direction
Sell 1 higher strike put + buy 2 (or more) lower strike puts. Opposite of put ratio spread. Use as a crash protection strategy — profits from a large downside move. May break even or result in a small credit if stock stays flat or rises. Limited upside risk.
Sell 1 lower strike call + buy 2 (or more) higher strike calls. Use when expecting a potential large upside move — want upside exposure with little to no cost. May break even if stock stays flat. Aggressive bullish strategy for breakout scenarios.
Strategy Selection Guide
📊 By Market Outlook
| Market View | Best Strategies |
|---|---|
| 🚀 Strong Bullish | Long Calls, Bull Call Spread, Synthetic Long, Call Ratio Backspread |
| 📈 Mildly Bullish | Covered Calls, Bull Put Spread, Cash-Secured Puts, Poor Man's CC |
| ↔️ Neutral | Iron Condors, Butterfly, Short Strangle, Short Straddle, Calendar Spreads |
| 📉 Mildly Bearish | Bear Call Spread, Bear Put Spread, Poor Man's Covered Puts |
| 💥 Strong Bearish | Long Puts, Bear Put Spread, Synthetic Short, Put Ratio Backspread |
| ⚡ Volatile (Either) | Long Straddle, Long Strangle |
| 🛡️ Crash Protection | Protective Puts, Collar, Put Ratio Backspreads |
| 🔧 Repair Position | Stock Repair Strategy |
📊 By Volatility Environment (IV)
| IV Level | Strategy Type | Examples |
|---|---|---|
| 🔥 High IV | Sell premium | Iron Condors, Short Strangles, Credit Spreads, Covered Calls |
| ❄️ Low IV | Buy premium | Long Straddles, Long Strangles, Debit Spreads, Long Options |
| 📈 Expecting IV Rise | Long Vega | Long Straddles, Calendars, Long Options |
| 📉 Expecting IV Crush | Short Vega | Iron Condors, Short Straddles, Covered Calls, Credit Spreads |
📊 By Risk Tolerance
| Risk Level | Suitable Strategies |
|---|---|
| 🟢 Conservative | Covered Calls, Protective Puts, Collars, Cash-Secured Puts |
| 🟡 Moderate | Bull/Bear Spreads, Iron Condors, Butterflies, Calendars, PMCC/PMCP |
| 🔴 Aggressive | Naked Options, Straddles/Strangles, Ratio Spreads, Synthetic Positions |
Educational content only. Options trading involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. Not financial advice. Consult a licensed financial professional before trading options.