Strategies

Action

When to use

Risk

Reward

Break-even Point

Limited to the Premium.

Long Call

Buy Call Option

Investor is very bullish on the (Maximum loss if market

stock / index.

expires at or below the

Unlimited

Strike Price + Premium

option strike price).

Investor is very aggressive and

Short Call

Sell Call Option

he is very bearish about the

Unlimited

stock / index

Limited

to

the

amount of premium

Strike Price + Premium

When ownership is desired of

Synthetic Long

Buy Stock + Buy

Call

Put Option

stock yet investor is concerned Losses limited to Stock

about near-term downside risk. price + Put Premium
The outlook is conservatively Put Strike price
bullish.

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Profit potential is

Put Premium + Stock

unlimited.

Price

A long Put is a Bearish

Long Put

Buy Put Option

strategy. To take advantage of Investor is bearish about

a falling market an investor can the stock / index.

Short Put

Sell Put Option

stock / index. The main idea is

to make a short term income.

This is often employed when

an investor has a short-term
neutral to moderately bullish
view on the stock he holds. He

Covered Call

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to

amount

the
of Stock Price - Premium

Premium paid.

buy Put options

Investor is very Bullish on the

Limited

Put Strike Price Put

Premium

Limited
amount

to

the
of

Premium received

Put

Strike

Price

Premium

If the stock price falls to

zero, the investor loses
the entire value of the
stock

but

retains

the

premium, since the call Limited to (Call

Buy Stock + Sell takes a short position on the will not exercise against Strike Price - Stock Stock Price paid
Call option to generate income
Call Option
Paid)
+ Premium received
him. So maximum risk = Price
from the option premium.
stock Price Paid- Call Premium received
Since the stock is purchased
Premium. If the stock
simultaneously with writing
price rises beyond the
(selling) the call, the strategy is
strike price the investor
commonly referred to as "buygives up all the gains on

write".

Long Combo :
Sell a Put, Buy
a Call

Sell a Put + Buy

a Call

the stock.

Investor is Bullish on the

stock

Unlimited (Lower Strike

+ net debit)

Unlimited

Higher strike + net debit

If the investor is of the view

Protective
Call/Synthetic
Long Put

Short

Stock

Buy Call Option

that the markets will go down

Limited. Maximum Risk

Maximum is Stock

(bearish) but wants to protect is Call Strike Price Price

against any unexpected rise in Stock Price + Premium

Call

Premium

Stock

Price

Call

Premium

the price of the stock.

Covered Put

Long Straddle

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Short Stock +
Short Put Option

If the investor is of the view

that

the

markets

Unlimited if the price of

are the

moderately bearish.

stock

rises

substantially

Maximum is (Sale
Price of the Stock

Sale Price of Stock +

Strike Price) + Put Put Premium

Premium

Upper Breakeven Point

Buy Put + Buy

The investor thinks that the

Call

underlying stock / index will premium paid.

experience
significant

Limited to the initial

Unlimited

= Strike Price of Long

Call + Net Premium
Paid; Lower Breakeven

volatility in the near term.

Point = Strike Price of

Long Put - Net Premium
Paid

Upper Breakeven Point

= Strike Price of Short

The investor thinks that the

Short Straddle

Sell Put + Sell underlying stock / index will

Call

experience very little volatility

Unlimited

Limited

to

the

premium received

in the near term.

Call + Net Premium

Received;
Breakeven

Lower
Point

Strike Price of Short Put

- Net Premium Received

Upper Breakeven Point

= Strike Price of Long

The investor thinks that the

Long Strangle

Buy OTM Put + underlying stock / index will

Buy OTM Call

Limited to the initial

experience very high levels of premium paid

volatility in the near term.

Call + Net Premium

Unlimited

Paid; Lower Breakeven

Point = Strike Price of
Long Put - Net Premium
Paid

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Upper Breakeven Point

This options trading strategy is

taken
Short Strangle

when

Sell OTM Put + investor

Sell OTM Call

the

thinks

underlying

= Strike Price of Short

options
that

stock

the
will

Limited

Unlimited

to

the

premium received

experience little volatility in

Call + Net Premium

Received
Breakeven

Lower
Point

Strike Price of Short Put

the near term.

- Net Premium Received

The collar is a good strategy to

use if the investor is writing

Collar

Buy Stock + Buy

Put + Sell Call

covered calls to earn premiums

Purchase

but wishes to protect himself Limited

Limited

Underlying

from an unexpected sharp drop

Price

of
Call

Premium + Put Premium

in the price of the underlying

security

Buy a Call with a

Bull Call Spread lower
Strategy
(ITM) +

strike Investor is moderately bullish

Sell a

Call with a higher

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Limited to any initial Limited

to

the

Price
of
in difference between Strike
establishing the position. the two strikes Purchased call + Net
Maximum loss occurs minus net premium Debit Paid
premium

paid

where

underlying cost.

the

Maximum

strike (OTM)

falls to the level of the profit occurs where

lower strike or below.

the underlying rises

to the level of the
higher

strike

or

above

Limited to the net

Limited. Maximum loss

Bull Put Spread

Strategy : Sell

Sell a Put + Buy

Put Option, Buy a Put

When

the

investor

moderately bullish

Put Option

is

occurs

where

the

underlying falls to the

level of the lower strike
or below

premium

credit.

Maximum

profit

occurs

where Strike Price of Short Put

underlying rises to - Net Premium Received

the level of the
higher

strike

or

above.

Bear

Call

Sell a Call with a

Limited to the net

Limited to the difference premium received

Spread Strategy
When the investor is mildly
Lower
(ITM) + Buy a
between the two strikes for the position i.e.,
: Sell ITM Call,
bearish on market.
premium received credit
Call with a higher
minus the net premium.
Buy OTM Call
for the short call
strike (OTM)
lower

strike

minus the premium

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Strike

Net

paid for the long

call.

Buy a Put with a

Bear Put Spread higher

strike

Strategy : Buy (ITM) + Sell a

Put, Sell Put

Put with a lower

Limited

to

the

amount

paid

for

net Limited

the

the difference between

When you are moderately spread. i.e. the premium the

bearish on market direction

to

two

strike

Strike Price of Long Put

paid for long position prices minus the - Net Premium Paid
less premium received net premium paid

strike (OTM)

for short position

for the position.

Upper Breakeven Point

= Strike Price of Higher
Sell 2 ATM Call
Long
butterfly

Call + Buy 1 ATM

Call + Buy 1
OTM Call

When the investor is neutral

Difference between

on

adjacent

market

direction

bearish on volatility.

and Net debit paid

strikes

minus net debit

Strike Long Call - Net

Premium Paid ; Lower
Breakeven

Point

Strike Price of Lower

Strike Long Call + Net
Premium Paid

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Upper Breakeven Point

Investor is neutral on market Limited
Buy 2 ATM Call direction
Short
Butterfly

and

bullish

to

the

net

= Strike Price of Highest

on difference between the

Limited to the net Strike Short Call - Net

Call + Sell 1 ITM Call volatility. Neutral means that adjacent strikes (Rs. 100 premium received Premium
+

Sell

1 you expect the market to move in this example) less the for

OTMCall

the

Received

option Lower Breakeven Point

in either direction - i.e. bullish premium received for the spread.

= Strike Price of Lowest

and bearish.

Strike Short Call + Net

position.

Premium Received

Buy 1 ITM Call

Option

(Lower

Strike),

Sell

ITM Call Option

Long
Condor

Call (Lower Middle),

Sell 1 OTM Call
Option

(Higher

Middle), Buy 1
OTM Call Option
(Higher Strike)

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Limited to the minimum

When an investor believes that of the difference between
the underlying market will the

lower

strike

call

trade in a range with low spread less the higher

volatility until the options call spread less the total
expire.

premium paid for the

condor.

Limited.

The

maximum profit of Upper Breakeven Point

a long condor will = Highest Strike Net
be realized when Debit
the stock is trading Breakeven

Lower
Point

between the two Lowest Strike + Net

middle
prices.

strike Debit

Short 1 ITM Call

Option

(Lower

Limited.

Strike), Long 1
ITM
Short
Condor

Call

option

Call

Call When an investor believes that

(Lower the underlying market will

Middle), Long 1 break out of a trading range

OTM Call Option but is not sure in which
(Higher Middle), direction.
Short 1 OTM Call
Option
Strike)

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(Higher

The

maximum profit of
Limited. The maximum a

short

condor

loss of a short condor occurs when the

occurs at the center of the underlying stock /
option spread

index

is

trading

past the upper or

lower strike prices.

Upper Break even Point

= Highest Strike Net
Credit ; Lower Break
Even Point

= Lowest

Strike + Net Credit