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Option Trading Strategies

The document outlines various option trading strategies, including buying calls, buying puts, selling calls, selling puts, buying and selling straddles, long and short synthetics, bull and bear call spreads, bull and put spreads, back spreads, long combos, strangles, straps, strips, long and short call and put ladders, butterflies, condors, covered calls, covered puts, and collars. It provides a detailed example of a "buy call" strategy, which profits if the underlying stock or index rises above the strike price plus the premium paid, while limiting risk to the premium amount.

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71 views2 pages

Option Trading Strategies

The document outlines various option trading strategies, including buying calls, buying puts, selling calls, selling puts, buying and selling straddles, long and short synthetics, bull and bear call spreads, bull and put spreads, back spreads, long combos, strangles, straps, strips, long and short call and put ladders, butterflies, condors, covered calls, covered puts, and collars. It provides a detailed example of a "buy call" strategy, which profits if the underlying stock or index rises above the strike price plus the premium paid, while limiting risk to the premium amount.

Uploaded by

AKSHAYA AKSHAYA
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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OPTION TRADING STRATEGIES

TABLE OF CONTENTS
1. BUY CALL ...........................................................................................................................................2
2. BUY PUT ..............................................................................................................................................3
3. SELL CALL .........................................................................................................................................4
4. SELL PUT ............................................................................................................................................5
5. BUY STRADDLE ................................................................................................................................6
6. SELL STRADDLE...............................................................................................................................8
7. LONG SYNTHETIC .........................................................................................................................10
8. SHORT SYNTHETIC .......................................................................................................................12
9. BULL CALL SPREAD......................................................................................................................14
10. BULL PUT SPREAD.........................................................................................................................16
11. BEAR CALL SPREAD .....................................................................................................................18
12. BEAR PUT SPREAD ........................................................................................................................20
13. CALL BACKSPREAD......................................................................................................................22
14. PUT BACKSPREAD .........................................................................................................................24
15. LONG COMBO .................................................................................................................................26
16. LONG STRANGLE...........................................................................................................................28
17. SHORT STRANGLE ........................................................................................................................30
18. STRAP ................................................................................................................................................32
19. STRIP..................................................................................................................................................34
20. LONG CALL LADDER....................................................................................................................36
21. LONG PUT LADDER.......................................................................................................................38
22. SHORT CALL LADDER..................................................................................................................40
23. SHORT PUT LADDER.....................................................................................................................42
24. LONG CALL BUTTERFLY ............................................................................................................44
25. SHORT CALL BUTTERFLY ..........................................................................................................46
26. LONG CALL CONDOR...................................................................................................................48
27. SHORT CALL CONDOR.................................................................................................................50
28. COVERED CALL .............................................................................................................................52
29. COVERED PUT.................................................................................................................................54
30. COLLAR ............................................................................................................................................56

Page 1
Buy Call
Buying or “Going Long” on a Call is a strategy that must be devised when the investor is bullish on the market
direction moving up in the short term.

A Long Call Option is the simplest way to benefit if the investor believes that the market will make an upward
move. It is the most common choice among first-time investors. “Being Long” on a Call Option means the
investor will benefit if the underlying Stock/Index rallies. However, the risk is limited on the downside if the
underlying Stock/Index makes a correction.

Investor View: Bullish on the Stock / Index.

Risk: Limited to the premium paid.

Reward: Unlimited.

Breakeven: Strike Price + premium paid.

Illustration
E.g Nifty is currently trading @ 5500. Investor is expecting the markets to rise from these levels. So buying
Call Option of Nifty having Strike 5500 @ premium 50 will benefit the investor when Nifty goes above 5550.
Strategy Stock/Index Type Strike Premium
Outflow
Buy Call NIFTY(Lot Buy CALL 5500 50
size 50)

The Payoff Schedule and Chart for the above is shown below.

Payoff Schedule Payoff Chart


NIFTY @ Expiry Net Payoff ( )
14000
5200 -2500
12000
5300 -2500 10000
5400 -2500 8000
5500 -2500 6000
5550 0 4000
5600 2500 2000
5700 7500 0
5800 12500 -2000 5200 5300 5400 5500 5600 5700 5800
5900 17500 -4000

In the above chart, the breakeven happens the moment Nifty crosses 5550 and risk is limited to a maximum of
2500 (calculated as Lot size * Premium Paid).

Disclaimer

Page 2

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