options-strategies

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.

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