Options give you more ways to express a view than just buying or shorting a stock. You can generate income, hedge a position, bet on a big move without picking a side, or take a directional view with a known maximum loss. The trade-off: there's a lot of vocabulary.
This is a quick reference to the strategies you'll come across, organized by what you're trying to do.
Income & protection
These strategies put time on your side. You collect a premium upfront and profit when markets are quiet or move slowly in your favour. They're also where most options traders who stick around tend to start — because they force you to think about probability and defined risk before you think about upside.
Strategy | What it is |
|---|---|
| Covered call | Sell a call against shares you already own. You collect a premium upfront; if the stock gets called away at expiry, you sell at the strike you agreed to. A way to generate income on a position you were holding anyway. |
| Secured put | Sell a put while setting aside enough cash to buy the shares if assigned. You get paid to commit to a buy price you'd be happy with — defined risk, income upfront. If the stock stays above your strike, you keep the premium and move on. |
| Put credit spread | Sell a put and buy another at a lower strike for protection. Limits your downside compared to a secured put alone and requires less capital. Profits when the stock stays above your short strike. |
| Call credit spread | Sell a call and buy another at a higher strike. Profits when the stock stays below your short strike. An income strategy with a known maximum loss. |
| Protective put | Buy a put on shares you already own — insurance against a drop. Your downside is capped at the strike; the cost is the premium. |
| Collar | Combine a protective put with a covered call on shares you own. Caps both your downside and your upside, often at little or no net cost. |
Defined risk, directional
You have a view on direction. These strategies let you express it with a known maximum loss — unlike buying the stock outright or a long option alone, you can't lose more than what you paid.
Strategy | What it is |
|---|---|
| Call debit spread | Buy a call and sell another at a higher strike (same expiry). Cheaper than a long call, with a higher probability of profit and a defined maximum loss. Useful when you're bullish but want to limit your cost. |
| Put debit spread | Buy a put and sell another at a lower strike (same expiry). Bearish with a defined maximum loss — cheaper than a long put alone. |
| Diagonal spread | Buy one option and sell another of the same type at a different strike and a different expiry. Lets you take a directional view while collecting time decay on the shorter-dated leg. |
| Calendar spread | Buy and sell the same option at the same strike but different expiries. A way to trade time decay and shifts in volatility around a specific date — like an earnings announcement. |
Volatility plays — direction optional
These aren't "no opinion" strategies — they're a view on volatility. Either you think something big is about to move (and you don't know which way), or you think the stock is going nowhere and you want to get paid for that view.
Strategy | What it is |
|---|---|
| Long straddle | Buy a call and a put at the same strike and expiry. Profits when the stock makes a big move in either direction. Often used into earnings or major events. |
| Long strangle | Buy a call and a put at different strikes (same expiry). Cheaper than a straddle, but you'll need a bigger move to come out ahead. |
| Short straddle | Sell a call and a put at the same strike and expiry. You collect a premium from both sides and profit if the stock barely moves — but losses are theoretically unlimited if it breaks out. |
| Short strangle | Sell a call and a put at different strikes. Wider profit zone than a short straddle, but the same uncapped risk on either tail. |
| Short iron condor | A put credit spread and a call credit spread combined — short strikes set apart. Profits when the stock stays between the two short strikes through expiry. A premium-collection strategy for low-volatility environments. |
| Short iron butterfly | A put credit spread and call credit spread with short strikes at the same level. Profits when the stock lands near that strike at expiry. |
| Long butterfly | Buy one option at a lower strike, sell two at a middle strike, buy one at a higher strike (all calls or all puts, same expiry). Profits when the stock lands near the middle strike — defined risk, defined reward. |
| Broken wing butterfly | A butterfly with one wing wider than the other. Often opened for a credit, with no risk on one side and a larger maximum loss on the other. |
| Long condor | Like a long butterfly, but with a gap between the two middle strikes — a wider profit zone with defined risk. |
| Jade lizard | Sell a secured put and a call credit spread on the same stock. Collects a premium with no upside risk, as long as the credit collected exceeds the width of the call spread. Downside risk is the same as a secured put. |
High leverage — understand before you trade
These are the most straightforward strategies to understand — and the hardest to use profitably over time. You get full upside exposure, but time decay works against you from the moment you buy. Direction, timing, and implied volatility all have to cooperate.
Traders who start here often move toward income and defined-risk strategies once they've traded through a few expiry cycles. That's not a rule — it's just what tends to happen.
Strategy | What it is |
|---|---|
| Long call | Buy a call to profit from a price rise. You get full upside exposure for a fixed premium — but direction, timing, and implied volatility all have to move in your favour. Your maximum loss is what you paid. |
| Long put | Buy a put to profit from a price drop. Same structure as a long call — defined loss, directional leverage, time working against you. |
| LEAPS (long-dated options) | Calls or puts with 12+ months to expiry. Lower daily time decay than short-dated options, larger upfront cost. Often used as leveraged stock replacements or long-term directional bets — more time to be right, but more capital at risk for longer. |
| Naked call | Sell a call without owning the underlying stock. You collect a premium, but losses are theoretically unlimited if the stock keeps rising. The highest-risk strategy in common use. |
| Naked put | Sell a put without setting aside the cash to buy the shares. Losses are capped only by the stock reaching zero. |
Options are complex, and not every strategy is right for every account or every investor. Make sure you understand the mechanics, the risks, and the tax implications for the account you're trading in before you place a trade.