The
ULTIMATE
Options Strategy Guide
About Us. . .
Option Alpha has been an industry leader
in options trading education for 7 years.!
With more than 60,000+ subscribers,
followers, fans, and and traders in our
community we are on a mission to helping
every single person we meet.!
So, whether youre looking to use options
for hedging and protection or speculation
and income, youll need to know more
about how to use them correctly (meaning
that you should actually make a profit).!
Thats where we come into play!
Using This Guide
Each strategy has an accompanying graph
showing profit and loss at expiration. The vertical
axis shows the profit/loss scale.!
!
When the strategy line is below the horizontal axis,
it assumes you paid for the position or had a loss.
When it is above the horizontal axis, it assumes
you received a credit for the position or a profit.!
!
The dotted line indicates the strike price. The
intersection of the strategy line and the horizontal
axis is the break-even point (BEP) not including
transaction costs, commissions, or
margin(borrowing) costs.!
!
The risks/rewards described are generalizations
and may be lesser or greater than indicated.
Bullish!
Options!
Strategies
Put Credit Spread
Example: Sell 1 put; buy 1 put at lower
strike!
Risk: Limited!
Reward: Limited!
Increase in Volatility: Helps or hurts
depending on strikes chosen!
Time Erosion: Helps or hurts depending
on strikes chosen!
BEP: Short put strike minus net credit
Naked Short Put
Example: Sell 1 put!
Risk: Unlimited!
Reward: Limited!
Increase in Volatility: Hurts position!
Time Erosion: Helps position!
BEP: Strike price minus credit received
Call Butterfly
Example: Buy 1 call; sell 2 calls at next
higher strike; buy 1 call at next higher strike
(can skip strike for BWB)!
Risk: Limited!
Reward: Limited!
Increase in Volatility: Typically hurts position!
Time Erosion: Typically helps position!
BEP: Two BEPs!
1. Lower long call strike plus net debit paid!
2. Higher long call strike minus net debit paid
Call Debit Spread
Example: Buy 1 call; sell 1 call at higher
strike!
Risk: Limited!
Reward: Limited!
Increase in Volatility: Helps or hurts
depending on strikes chosen!
Time Erosion: Helps or hurts depending
on strikes chosen!
BEP: Long call strike plus net premium
paid
Call Calendar
Example: Sell 1 near-term call; buy 1
long-term call same strike!
Risk: Limited!
Reward: Limited!
Increase in Volatility: Helps position!
Time Erosion: Typically helps position!
BEP: Varies depending on strikes
Call Back-Spread
Example: Sell 1 call; buy 2 calls at higher
strike!
Risk: Limited!
Reward: Unlimited!
Increase in Volatility: Typically helps position!
Time Erosion: Typically hurts position!
BEP: Two BEPs!
1. Short call strike plus net credit received!
2. Long call strike plus [(the difference
between the long call strike and short call
strike) minus credit received]
Neutral!
Options!
Strategies
Short Strangle
Example: Sell 1 call; sell 1 put at strikes
equal from current price!
Risk: Unlimited!
Reward: Limited!
Increase in Volatility: Hurts position!
Time Erosion: Helps position!
BEP: Two BEPs!
1. Call strike plus net credit received!
2. Put strike minus net credit received
Long Strangle
Example: Buy 1 call; buy 1 put at strikes
equal from current price!
Risk: Limited!
Reward: Unlimited!
Increase in Volatility: Helps position!
Time Erosion: Hurts position!
BEP: Two BEPs!
1. Call strike plus net debit paid!
2. Put strike minus net debit paid
Iron Condor
Example: Sell 1 call; buy 1 call at higher strike;
sell 1 put; buy 1 put at lower strike!
Risk: Limited!
Reward: Limited!
Increase in Volatility: Helps or hurts depending
on strikes chosen!
Time Erosion: Helps or hurts depending on
strikes chosen!
BEP: Two BEPs!
1. Short call strike minus net credit received!
2. Short put strike plus net credit received
Short Straddle
Example: Sell 1 call; sell 1 put at same
strike!
Risk: Unlimited!
Reward: Limited!
Increase in Volatility: Hurts position!
Time Erosion: Helps position!
BEP: Two BEPs!
1. Call strike plus net credit received!
2. Put strike minus net credit received
Long Straddle
Example: Buy 1 call; buy 1 put at same
strike price!
Risk: Limited!
Reward: Unlimited!
Increase in Volatility: Helps position!
Time Erosion: Hurts position!
BEP: Two BEPs!
1. Call strike plus net debit paid!
2. Put strike minus net debit paid
Bearish!
Options!
Strategies
Call Credit Spread
Example: Sell 1 call; buy 1 call at higher
strike!
Risk: Limited!
Reward: Limited!
Increase in Volatility: Helps or hurts
depending on strikes chosen!
Time Erosion: Helps or hurts depending
on strikes chosen!
BEP: Short call strike plus net credit
Naked Short Call
Example: Sell 1 call!
Risk: Unlimited!
Reward: Limited!
Increase in Volatility: Hurts position!
Time Erosion: Helps position!
BEP: Strike price plus credit received
Put Butterfly
Example: Buy 1 put; sell 2 puts at next lower
strike; buy 1 put at next lower strike (can skip
strike for BWB)!
Risk: Limited!
Reward: Limited!
Increase in Volatility: Typically hurts position!
Time Erosion: Typically helps position!
BEP: Two BEPs!
1. Higher long put strike minus net debit paid!
2. Lower long put strike plus net debit paid
Put Debit Spread
Example: Buy 1 put; sell 1 put at lower
strike!
Risk: Limited!
Reward: Limited!
Increase in Volatility: Helps or hurts
depending on strikes chosen!
Time Erosion: Helps or hurts depending
on strikes chosen!
BEP: Long put strike minus net premium
paid
Put Calendar
Example: Sell 1 near-term put; buy 1
long-term put same strike!
Risk: Limited!
Reward: Limited!
Increase in Volatility: Helps position!
Time Erosion: Typically helps position!
BEP: Varies depending on strikes
Put Back-Spread
Example: Sell 1 put; buy 2 puts at lower strike!
Risk: Limited!
Reward: Limited, but substantial!
Increase in Volatility: Typically helps position!
Time Erosion: Typically hurts position!
BEP: Two BEPs!
1. Short put strike minus premium received!
2. Long put strike minus [(difference between
long put strike and short put strike) minus
credit received]
