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.

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

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

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

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

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

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

Greeks Quick Reference

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)?

IV Rank Guide

Optimal DTE by Strategy Type

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)

Common Adjustments