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Option Trading Strategies by Outlook

  1. Form an opinion about the stock you are trading or the market itself, such as "bullish" or "bearish".
  2. Examine the groupings below that match your opinion, and check characteristics such as the risk and reward and other features. If you are new to options, stick with strategies that show a "limited" Max Loss.
  3. Click on any strategy name to read more about it.
Stock or Short Stock Substitutes
  • Options positions that gain and lose similar to stock or short stock.

    See these Option Graphs on one page.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    unlimited
    unlimited
    either
    Simulates long stock with options alone.
    unlimited
    unlimited
    either
    Simulates short stock with options alone.
    unlimited
    limited
    credit
    About the same graph as long stock, up to the short strike used.
    unlimited
    limited
    credit
    About the same graph as short stock, down to the short strike used.

     

    Mildly Bullish

  • Usually some rise in stock price is necessary for a gain, although a small drop may be tolerable.
  • Potential gains may be small or limited relative to risk.

    See these Option Graphs on one page.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    unlimited
    limited
    debit
    Use stock ownership to make income. Same graph as Short Put, ITM.
    unlimited
    limited
    credit
    Same graph as Covered Call, OTM.
    Various Bull Verticals
    limited
    limited
    either

     

    Bullish

  • Some rise in stock price is necessary for a gain.
  • Potential gains may be good but limited, or unlimited.

    See these Option Graphs on one page.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    limited
    unlimited
    debit
    Possible stock substitute with built-in stop loss.
    limited
    limited
    debit
    Possible alternative to Long Calls. Benefits from an increase in IV after entry.
    limited
    limited
    either
    Possible alternative to Long Calls. Benefits from a decrease in IV after entry.
    limited
    unlimited
    debit
    Stock protection. Same graph as Long Call, ITM.
    limited down, unlimited up
    limited
    debit
    Compare to Butterfly, Bullish for limited risk on both sides.
    limited
    limited
    debit
    Possible alternative to Long Calls. Benefits from an increase in IV after entry.
    limited
    limited
    debit
    Even chance of a good gain.
    limited
    limited
    credit
    Even chance of a good gain. Same graph as bullish Bull Call but entered for a credit.
    limited
    limited
    debit
    Stock protection and income to pay for the protection. Same graph as a Bull Call -1 to +1. Bull Call requires less investment.
    Various other Bull Verticals
    limited
    limited
    either

     

    Very Bullish

  • Larger rise in stock price is necessary for a gain.
  • Potential gains may be large but limited, or unlimited.

    See these Option Graphs on one page.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    limited
    unlimited
    debit
    most commonly used bullish strategy
    limited
    limited
    debit
    less debit than a long call
    limited
    limited
    credit
    Same graph as very bullish Bull Call but entered for a credit.
    Various other Bull Verticals
    limited
    limited
    either

     

    Extremely Bullish

  • Rise of more than 1 strike price in stock price is necessary for a gain.
  • Potential gains may be large but limited, or unlimited.

    See these Option Graphs on one page.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    limited
    unlimited
    debit
    For speculation.
    Various Bull Verticals
    limited
    limited
    either

     

    Neutral - to - Bullish

  • Position can gain with no change in stock price.
  • Position can gain with rise in stock price.
  • Potential gains may be good but limited, or unlimited.

    See these Option Graphs on one page.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    limited
    limited
    debit
    Can gain from the passage of time if stock doesn't move or rises.
    limited
    limited
    credit
    Same graph as neutral-to-bullish Bull Call, but entered for a credit.
    limited
    limited
    either
    A Double Diagonal using more bullish strike prices.
    limited
    unlimited
    debit
    Possible substitute for Long Call. No movement or less movement needed to profit.
    unlimited
    limited
    debit
    For special situations when IV is much higher than normal but a big drop in stock price is not expected.
    unlimited
    limited
    credit
    Same graph as Buy-Write, ITM. Normally a low potential gain strategy, but can also be used for for special situations when IV is much higher than normal but a big drop in stock price is not expected.
    unlimited
    limited
    credit
    With normal IV, more bullish than Short Put, OTM.
    unlimited
    limited
    debit
    With normal IV, more bullish than Buy-Write, ITM.
    Various other Bull Verticals
    limited
    limited
    either

     

    Near Term Neutral - Far Term Bullish

  • Position can gain with no change in stock price.
  • Position can gain with small rise or fall in stock price.
  • Position has the potential to be held for a rise in stock price after the first expiration.
  • Potential gains may be good but limited.

    See these Option Graphs on one page.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    limited
    limited
    debit
    Gain from no movement near term, bullish movement far term.
    Diagonalized Bear Call
    limited
    limited
    credit
    See the How to: Diagonal Spreads page for example.

     

    Neutral

  • Position can gain with no change in stock price.
  • Position can gain with small rise or fall in stock price.
  • Potential gains may be good but limited.

    See these Option Graphs on one page.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    limited
    limited
    debit
    Most commonly used neutral strategy. Benefits from an increase in IV after entry.
    limited
    limited
    debit
    Most commonly used neutral strategy. Benefits from an increase in IV after entry.
    unlimited
    limited
    debit
    Involves naked Calls. See Butterfly for safer alternative.
    Straddle Sale
    unlimited
    limited
    credit
    Involves naked options. See Butterfly for safer alternative.
    Strangle Sale
    unlimited
    limited
    credit
    Involves naked options. See Condor for safer alternative.
    limited
    limited
    either
    Like a Strangle Sale but with limited losses Benefits from a decrease in IV after entry.
    limited
    limited
    either
    Diagonal version of Butterfly or Condor. More adjustable. Benefits from an increase in IV after entry.
    limited
    limited
    either
    Like a Straddle Sale but with limited losses. Benefits from a decrease in IV after entry.

     

    Neutral - to - Bearish

  • Position can gain with no change in stock price.
  • Position can gain with fall in stock price.
  • Potential gains may be good but limited, or nearly unlimited.

    See these Option Graphs on one page.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    limited
    unlimited
    debit
    Possible substitute for Long Put. No movement or less movement needed to profit.
    limited
    limited
    credit
    Bear Put has same graph but is entered for a debit.
    limited
    limited
    debit
    Bear Call has same graph but is entered for a credit.
    limited
    limited
    either
    A Double Diagonal using more bearish strike prices.
    Various other Bear Verticals
    limited
    limited
    either
    unlimited
    limited
    credit
    Use ATM strike if more neutral, OTM strike if more bearish.

     

    Mildly Bullish to Bearish

  • Can gain with a restrained rise, or any drop in stock price.
  • Potential gains may be small or limited.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    Various Bear Verticals
    limited
    limited
    either

     

    Bullish or Bearish but not Neutral

  • Position can gain only with a rise or fall in stock price.
  • Potential gains may be good but limited, or unlimited.

    See these Option Graphs on one page.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    limited
    unlimited to upside
    credit
    Similar to a Straddle Purchase but more bullish.
    limited
    unlimited
    debit
    Best entered when volatility is low.
    limited
    unlimited
    debit
    Requires more stock movement than Straddle Purchase.
    limited
    unlimited to downside
    credit
    Similar to Straddle Purchase but more bearish.
    limited
    limited
    either
    Similar to a Straddle Purchase but less expensive or lower max loss.

     

    Mildly Bearish to Bullish

  • Can gain with a restrained drop, or any rise in stock price.
  • Potential gains may be small or limited.

    Click strategy names for graphs.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    unlimited
    limited
    credit
    Same graph as Covered Call, ITM. Also known as CSEP (Cash Secured Equity Put).
    unlimited
    limited
    debit
    Possible alternative to buying a put, for stock owners.
    Various Bull Verticals
    limited
    limited
    either

     

    Mildly Bearish

  • Some drop in stock price is necessary for a gain.
  • Potential gains may be small or limited.

    See this Option Graph on one page.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    unlimited
    limited
    credit
    Short Stock is used to "cover" short puts the same way long stock "covers" short calls.
    Various Bear Verticals
    limited
    limited
    either

     

    Bearish

  • Some drop in stock price is necessary for a gain.
  • Potential gains may be good but limited, or nearly unlimited.

    See these Option Graphs on one page.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    limited
    limited only by stock falling to zero
    debit
    Possible alternative to short stock.
    limited
    limited
    debit
    Possible alternative to Long Puts or short stock. Benefits from an increase in IV after entry.
    limited
    limited only by stock falling to zero.
    credit
    Short Stock with protection for the upside.
    limited
    limited
    either
    Possible alternative to Long Puts. Benefits from a decrease in IV after entry.
    limited up, unlimited down
    limited
    debit
    Compare to Butterfly, Bearish, for limited risk on both sides.
    limited
    limited
    debit
    Possible alternative to Long Puts or short stock. Benefits from an increase in IV after entry.
    limited
    limited
    credit
    Bear Put has same graph but is entered for a debit.
    limited
    limited
    debit
    Bear Call has same graph but is entered for a credit.
    Various other Bear Verticals
    limited
    limited
    either

     

    Very Bearish

  • Larger drop in stock price is necessary for a gain.
  • Potential gains may be large but limited, or nearly unlimited.

    See these Option Graphs on one page.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    limited
    unlimited
    debit
    Most commonly used bearish strategy.
    limited
    limited
    credit
    Bear Put has same graph but is entered for a debit.
    limited
    limited
    debit
    Bear Call has same graph but is entered for a credit.
    Various other Bear Verticals
    limited
    limited
    either

     

    Extremely Bearish

  • Drop of more than 1 strike price in stock price is necessary for a gain.
  • Potential gains may be large but limited, or nearly unlimited.

    See this Option Graph on one page.

  • Name
    Max Loss
    Max Gain
    Debit / Credit
    Comments
    limited
    limited only by stock falling to zero.
    debit
    For speculators.
    Various Bear Verticals
    limited
    limited
    either

     

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