Best Option Strategies

Common option strategies: when to use them, risk, reward and breakevens.

View: strongly bullish. Risk: premium paid. Reward: unlimited. Breakeven: strike + premium.

Simple, but time decay works against you every day.

View: strongly bearish. Risk: premium paid. Reward: large, up to strike minus premium. Breakeven: strike - premium.

Also used as insurance on a stock or portfolio.

View: moderately bullish. Buy a lower-strike call, sell a higher-strike call. Risk: net debit. Reward: capped at strike gap minus debit.

Cheaper than a long call, with a capped profit.

View: moderately bearish. Buy a higher-strike put, sell a lower-strike put. Risk: net debit. Reward: capped.

Cheaper than a long put when you expect a measured fall.

View: big move, direction unknown. Buy a call and a put at the same strike. Risk: total premium. Breakevens: strike ± total premium.

Best before events when implied volatility is not already very high.

View: market stays near the strike. Sell a call and a put at the same strike. Reward: premium received. Risk: unlimited.

High margin and high risk. Many traders add protective wings.

View: big move. Buy an out-of-the-money call and put. Risk: premium. Reward: unlimited on the upside, large on the downside.

Cheaper than a straddle, but needs a bigger move.

View: range-bound. Sell an out-of-the-money call and put. Reward: premium. Risk: unlimited.

Wider breakevens than a short straddle, with less premium.

View: range-bound with defined risk. Sell a call spread and a put spread. Reward: net credit. Risk: wing width minus credit.

A defined-risk version of the short strangle.

View: price pins near a strike. Buy one low, sell two middle, buy one high strike. Risk: net debit. Reward: peak at the middle strike.

Low cost, low probability, good reward to risk.

View: mildly bullish on shares you own. Sell a call against them. Reward: premium plus gains up to the strike.

Adds income but caps upside.

View: hold shares but fear a fall. Buy a put. Cost: the premium. Benefit: a floor under losses.

Insurance that costs money every time you renew it.

Education only. Try any of these in the Strategy Builder.