Option Trading Strategies by Outlook

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Option Trading Strategies by Outlook

Form an opinion about the stock you are trading or the market itself, such as "bullish" or "bearish".
Examine the groupings below that match your opinion, and check characteristics such as the risk and reward and other features. If you are new to options, stick with strategies that show a "limited" Max Loss.
Click on any strategy name to read more about it.

Stock or Short Stock Substitutes
Options positions that gain and lose similar to stock or short stock. See these Option Graphs on one page.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Synthetic Long Stock	unlimited	unlimited	either	Simulates long stock with options alone.
Synthetic Short Stock	unlimited	unlimited	either	Simulates short stock with options alone.
Deep ITM Short Put	unlimited	limited	credit	About the same graph as long stock, up to the short strike used.
Deep ITM Short Call	unlimited	limited	credit	About the same graph as short stock, down to the short strike used.

Mildly Bullish
Usually some rise in stock price is necessary for a gain, although a small drop may be tolerable. Potential gains may be small or limited relative to risk. See these Option Graphs on one page.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Covered Call, OTM	unlimited	limited	debit	Use stock ownership to make income. Same graph as Short Put, ITM.
Short Put, ITM	unlimited	limited	credit	Same graph as Covered Call, OTM.
Various Bull Verticals	limited	limited	either	See All Bull Call debit spread graphs or All Bull Put credit spread graphs

Bullish
Some rise in stock price is necessary for a gain. Potential gains may be good but limited, or unlimited. See these Option Graphs on one page.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Long Call, ITM	limited	unlimited	debit	Possible stock substitute with built-in stop loss.
Calendar Call, OTM	limited	limited	debit	Possible alternative to Long Calls. Benefits from an increase in IV after entry.
Butterfly, Bullish	limited	limited	either	Possible alternative to Long Calls. Benefits from a decrease in IV after entry.
Married Put	limited	unlimited	debit	Stock protection. Same graph as Long Call, ITM.
Ratio Call	limited down, unlimited up	limited	debit	Compare to Butterfly, Bullish for limited risk on both sides.
Calendar Put, ITM	limited	limited	debit	Possible alternative to Long Calls. Benefits from an increase in IV after entry.
Bull Call -1 to +1	limited	limited	debit	Even chance of a good gain.
Bull Put -1 to +1	limited	limited	credit	Even chance of a good gain. Same graph as bullish Bull Call but entered for a credit.
Collar	limited	limited	debit	Stock protection and income to pay for the protection. Same graph as a Bull Call -1 to +1. Bull Call requires less investment.
Various other Bull Verticals	limited	limited	either	See All Bull Call debit spread graphs or All Bull Put credit spread graphs

Very Bullish
Larger rise in stock price is necessary for a gain. Potential gains may be large but limited, or unlimited. See these Option Graphs on one page.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Long Call, ATM	limited	unlimited	debit	most commonly used bullish strategy
Bull Call, ATM strike to +1	limited	limited	debit	less debit than a long call
Bull Put, ATM strike to +1	limited	limited	credit	Same graph as very bullish Bull Call but entered for a credit.
Various other Bull Verticals	limited	limited	either	See All Bull Call debit spread graphs or All Bull Put credit spread graphs

Extremely Bullish
Rise of more than 1 strike price in stock price is necessary for a gain. Potential gains may be large but limited, or unlimited. See these Option Graphs on one page.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Long Call, OTM	limited	unlimited	debit	For speculation.
Various Bull Verticals	limited	limited	either	See All Bull Call debit spread graphs or All Bull Put credit spread graphs

Neutral - to - Bullish
Position can gain with no change in stock price. Position can gain with rise in stock price. Potential gains may be good but limited, or unlimited. See these Option Graphs on one page.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Bull Call, -1 to ATM	limited	limited	debit	Can gain from the passage of time if stock doesn't move or rises.
Bull Put, -1 to ATM	limited	limited	credit	Same graph as neutral-to-bullish Bull Call, but entered for a credit.
Double Diagonal, bullish	limited	limited	either	A Double Diagonal using more bullish strike prices.
Ratio Calendar Call	limited	unlimited	debit	Possible substitute for Long Call. No movement or less movement needed to profit.
Buy-Write, ITM	unlimited	limited	debit	For special situations when IV is much higher than normal but a big drop in stock price is not expected.
Short Put, OTM	unlimited	limited	credit	Same graph as Buy-Write, ITM. Normally a low potential gain strategy, but can also be used for for special situations when IV is much higher than normal but a big drop in stock price is not expected.
Short Put, ATM	unlimited	limited	credit	With normal IV, more bullish than Short Put, OTM.
Covered Call, ATM	unlimited	limited	debit	With normal IV, more bullish than Buy-Write, ITM.
Various other Bull Verticals	limited	limited	either	See All Bull Call debit spread graphs or All Bull Put credit spread graphs

Near Term Neutral - Far Term Bullish
Position can gain with no change in stock price. Position can gain with small rise or fall in stock price. Position has the potential to be held for a rise in stock price after the first expiration. Potential gains may be good but limited. See these Option Graphs on one page.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Calendar Call, ATM	limited	limited	debit	Gain from no movement near term, bullish movement far term.
Diagonalized Bear Call	limited	limited	credit	See the How to: Diagonal Spreads page for example.

Neutral
Position can gain with no change in stock price. Position can gain with small rise or fall in stock price. Potential gains may be good but limited. See these Option Graphs on one page.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Calendar Call, ATM	limited	limited	debit	Most commonly used neutral strategy. Benefits from an increase in IV after entry.
Calendar Put, ATM	limited	limited	debit	Most commonly used neutral strategy. Benefits from an increase in IV after entry.
Ratio Write, ATM	unlimited	limited	debit	Involves naked Calls. See Butterfly for safer alternative.
Straddle Sale	unlimited	limited	credit	Involves naked options. See Butterfly for safer alternative.
Strangle Sale	unlimited	limited	credit	Involves naked options. See Condor for safer alternative.
Condor	limited	limited	either	Like a Strangle Sale but with limited losses Benefits from a decrease in IV after entry.
Double Diagonal	limited	limited	either	Diagonal version of Butterfly or Condor. More adjustable. Benefits from an increase in IV after entry.
Butterfly	limited	limited	either	Like a Straddle Sale but with limited losses. Benefits from a decrease in IV after entry.

Neutral - to - Bearish
Position can gain with no change in stock price. Position can gain with fall in stock price. Potential gains may be good but limited, or nearly unlimited. See these Option Graphs on one page.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Ratio Calendar Put	limited	unlimited	debit	Possible substitute for Long Put. No movement or less movement needed to profit.
Bear Call, ATM to +1	limited	limited	credit	Bear Put has same graph but is entered for a debit.
Bear Put, ATM to +1	limited	limited	debit	Bear Call has same graph but is entered for a credit.
Double Diagonal, bearish	limited	limited	either	A Double Diagonal using more bearish strike prices.
Various other Bear Verticals	limited	limited	either	See All Bear Call credit spread graphs or All Bear Put debit spread graphs
Covered Put	unlimited	limited	credit	Use ATM strike if more neutral, OTM strike if more bearish.

Mildly Bullish to Bearish
Can gain with a restrained rise, or any drop in stock price. Potential gains may be small or limited.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Various Bear Verticals	limited	limited	either	See All Bear Call credit spread graphs or All Bear Put debit spread graphs

Bullish or Bearish but not Neutral
Position can gain only with a rise or fall in stock price. Potential gains may be good but limited, or unlimited. See these Option Graphs on one page.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Backspread with Calls	limited	unlimited to upside	credit	Similar to a Straddle Purchase but more bullish.
Straddle Purchase	limited	unlimited	debit	Best entered when volatility is low.
Strangle Purchase	limited	unlimited	debit	Requires more stock movement than Straddle Purchase.
Backspread with Puts	limited	unlimited to downside	credit	Similar to Straddle Purchase but more bearish.
Butterfly, Reverse	limited	limited	either	Similar to a Straddle Purchase but less expensive or lower max loss.

Mildly Bearish to Bullish
Can gain with a restrained drop, or any rise in stock price. Potential gains may be small or limited. Click strategy names for graphs.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Short Put, OTM	unlimited	limited	credit	Same graph as Covered Call, ITM. Also known as CSEP (Cash Secured Equity Put).
Covered Call, ITM	unlimited	limited	debit	Possible alternative to buying a put, for stock owners.
Various Bull Verticals	limited	limited	either	See All Bull Call debit spread graphs or All Bull Put credit spread graphs

Mildly Bearish
Some drop in stock price is necessary for a gain. Potential gains may be small or limited. See this Option Graph on one page.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Covered Put	unlimited	limited	credit	Short Stock is used to "cover" short puts the same way long stock "covers" short calls.
Various Bear Verticals	limited	limited	either	See All Bear Call credit spread graphs or All Bear Put debit spread graphs

Bearish
Some drop in stock price is necessary for a gain. Potential gains may be good but limited, or nearly unlimited. See these Option Graphs on one page.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Long Put, ITM	limited	limited only by stock falling to zero	debit	Possible alternative to short stock.
Calendar Call, ITM	limited	limited	debit	Possible alternative to Long Puts or short stock. Benefits from an increase in IV after entry.
Synthetic Put	limited	limited only by stock falling to zero.	credit	Short Stock with protection for the upside.
Butterfly, Bearish	limited	limited	either	Possible alternative to Long Puts. Benefits from a decrease in IV after entry.
Ratio Put	limited up, unlimited down	limited	debit	Compare to Butterfly, Bearish, for limited risk on both sides.
Calendar Put, OTM	limited	limited	debit	Possible alternative to Long Puts or short stock. Benefits from an increase in IV after entry.
Bear Call, -1 to +1	limited	limited	credit	Bear Put has same graph but is entered for a debit.
Bear Put, -1 to +1	limited	limited	debit	Bear Call has same graph but is entered for a credit.
Various other Bear Verticals	limited	limited	either	See All Bear Call credit spread graphs or All Bear Put debit spread graphs

Very Bearish
Larger drop in stock price is necessary for a gain. Potential gains may be large but limited, or nearly unlimited. See these Option Graphs on one page.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Long Put, ATM	limited	unlimited	debit	Most commonly used bearish strategy.
Bear Call, -1 to ATM	limited	limited	credit	Bear Put has same graph but is entered for a debit.
Bear Put, -1 to ATM	limited	limited	debit	Bear Call has same graph but is entered for a credit.
Various other Bear Verticals	limited	limited	either	See All Bear Call credit spread graphs or All Bear Put debit spread graphs

Extremely Bearish
Drop of more than 1 strike price in stock price is necessary for a gain. Potential gains may be large but limited, or nearly unlimited. See this Option Graph on one page.
Name	Max Loss	Max Gain	Debit / Credit	Comments
Long Put, OTM	limited	limited only by stock falling to zero.	debit	For speculators.
Various Bear Verticals	limited	limited	either	See All Bear Call credit spread graphs or All Bear Put debit spread graphs

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