Strategy Table

Appendix A. Strategy Table

Strategy	Execution	Benefits	Disadvantages
Long Call	Buy a call.	Capped risk; uncapped reward; better leverage than stock purchase.	Can lose entire stake if the call expires OTM (out of the money).
Long Put	Buy a put.	Capped risk; uncapped reward; better leverage than straight stockshorting.	Can lose entire stake if the put expires OTM (out of the money).
Short Call (naked)	Sell a call.	Short-term income strategy.	Uncapped risk and capped reward.
Short Put (naked)	Sell a put.	Short-term income strategy.	Uncapped risk and capped reward.
Covered Call	Buy stock and sell call.	Protected income strategy. Profit assured if stock remains static or rises. Calls can be sold on a monthly basis to generate income.	Uncapped risk and capped reward.
Collar	Buy stock, buy ATM put, and sell OTM call.	Can be a riskless strategy if executed correctly with the right stock.	Net debit out of your account. Works best for long-term trades where you leave it alone.
Covered Put	Sell stock (short) and sell put.	Net credit into your account.	Uncapped risk and capped reward.
Synthetic Call	Buy stock and buy put.	Capped risk and uncapped reward. Good insurance tactic.	Expensive strategy.
Synthetic Put	Short stock and buy call.	Capped risk and uncapped reward.	More complex than simply buying puts.
Covered Short Straddle	Buy stock and sell lower strike put and higher strike call with same expiration date.	Enhanced income (compared with Covered Call).	Very high risk and capped reward. Not recommended.
Covered Short Strangle	Buy stock and sell put and call with same strike and expiration date.	Enhanced income (compared with Covered Call).	Very high risk and capped reward. Not recommended.
Bull Call Spread	Buy lower strike calls and sell higher strike calls (same expiration).	Capped risk; lower breakeven point than simply buying a call.	Capped reward.
Bull Put Spread	Buy lower strike puts and sell higher strike puts (same expiration).	Capped risk; lower breakeven point than simply buying a put; net credit into your account.	Capped reward.
Bear Call Spread	Sell lower strike calls and buy higher strike calls (same expiration).	Capped risk; bearish income strategy.	Capped reward.
Bear Put Spread	Sell lower strike puts and buy higher strike puts (same expiration).	Capped risk.	Capped reward.
Bear Call Ladder	Buy lower strike calls, sell higher strike calls, and sell even higher strike calls (all same expiration).	Cheap strategy.	Uncapped risk if stock rises sharply; confusing as to whether this is a bullish or bearish strategy.
Bull Put Ladder	Buy lower strike puts, buy higher strike puts, and sell even higher strike puts (all same expiration).	Uncapped reward as the stock falls.	Expensive; confusing as to whether this is a bullish or bearish strategy.
Bull Call Ladder	Sell lower strike calls, buy higher strike calls, and buy even higher strike calls (all same expiration).	Uncapped reward as the stock rises.	Expensive; confusing as to whether this is a bullish or bearish strategy.
Bear Put Ladder	Sell lower strike puts, sell higher strike puts, and buy even higher strike puts (all same expiration).	Cheap strategy.	Uncapped risk as the stock falls; confusing as to whether this is a bullish or bearish strategy.
Straddle	Buy puts and calls with same strike price and expiration.	Capped risk; profitable if stocks rises or falls significantly; uncapped reward.	Expensive; low volatility required for entry whereas high volatility required once you are in.
Short Straddle	Sell puts and calls with same strike and expiration.	Net credit into your account; profitable if stock shows low volatility and does not move.	Uncapped risk on either side.
Strangle	Buy lower strike puts and buy higher strike calls (same expiration).	Capped risk; profitable if stocks rises or falls significantly; uncapped reward.	Low volatility required for entry whereas high volatility required once you are in.
Short Strangle	Sell lower strike puts and sell higher strike calls (same expiration).	Net credit into your account; profitable if stock shows low volatility and does not move.	Uncapped risk on either side.
Strip	Buy two puts and one call with same strike and expiration.	Capped risk; profitable if stocks rises or falls significantly; uncapped reward.	Expensive; low volatility required for entry whereas high volatility required once you are in.
Strap	Buy one put and two calls with same strike and expiration.	Capped risk; profitable if stocks rises or falls significantly; uncapped reward.	Expensive; low volatility required for entry whereas high volatility required once you are in.
Long Call Butterfly	Buy one lower strike call, sell two middle strike calls, and buy one higher strike call. All strikes evenly apart.	Capped risk and a cheap strategy to enter; can be very profitable if stock shows low volatility after you are in.	Capped reward; awkward to adjust.
Long Put Butterfly	Buy one lower strike put, sell two middle strike puts, and buy one higher strike put. All strikes evenly apart.	Capped risk and a cheap strategy to enter; can be very profitable if stock shows low volatility after you are in.	Capped reward; awkward to adjust.
Short Call Butterfly	Sell one lower strike call, buy two middle strike calls, and sell one higher strike call. All strikes evenly apart.	Capped risk; profitable if stock shows high volatility after you are in.	Capped reward; awkward to adjust.
Short Put Butterfly	Sell one lower strike put, buy two middle strike puts, and sell one higher strike put. All strikes evenly apart.	Capped risk; profitable if stock shows high volatility after you are in.	Capped reward; awkward to adjust.
Modified Call Butterfly	Buy one lower strike put, sell two middle strike puts, and buy one higher strike put. Middle strike closer to higher strike than to lower strike.	Capped risk and a cheap strategy to enter; can be very profitable if stock shows low volatility or rises modestly after you are in.	Capped reward; awkward to adjust.
Modified Put Butterfly	Buy one lower strike call, sell two middle strike calls, and buy one higher strike call. Middle strike closer to higher strike than to lower strike.	Capped risk and a cheap strategy to enter; can be very profitable if stock shows low volatility or rises modestly after you are in.	Capped reward; awkward to adjust.
Call Ratio Backspread	Sell one or two lower strike calls and buy two or three higher strike calls. Buy greater number of higher strike calls in ratio of 0.67 or less.	Capped risk; uncapped and highly geared reward if stock rises significantly.	Lots of volatility required after entry and in the right direction (upwards) for your trade to be profitable.
Put Ratio Backspread	Buy two or three lower strike puts and sell one or two higher strike puts. Buy greater number of lower strike puts in ratio of 0.67 or less.	Capped risk; uncapped and highly geared reward if stock falls significantly.	Lots of volatility required after entry and in the right direction (downwards) for your trade to be profitable.
Ratio Call Spread	Buy lower strike call and sell greater number of higher strike calls (ratio of 0.67 or less).		Uncapped risk; capped reward.
Ratio Put Spread	Buy higher strike put and sell greater number of lower strike puts (ratio of 0.67 or less).		Uncapped risk; capped reward.
Long Call Condor	Buy lower strike call, sell middle strike call, sell next middle strike call, and buy higher strike call. All strikes evenly apart.	Capped risk and a cheap strategy to enter; can be very profitable if stock remains rangebound after you are in.	Capped reward; awkward to adjust.
Long Put Condor	Buy lower strike put, sell middle strike put, sell next middle strike put, and buy higher strike put. All strikes evenly apart.	Capped risk and a cheap strategy to enter; can be very profitable if stock remains rangebound after you are in.	Capped reward; awkward to adjust.
Short Call Condor	Sell lower strike call, buy middle strike call, buy next middle strike call, and sell higher strike call. All strikes evenly apart.	Capped risk; profitable if stock shows high volatility after you are in.	Capped reward; awkward to adjust.
Short Put Condor	Sell lower strike put, buy middle strike put, buy next middle strike put, and sell higher strike put. All strikes evenly apart.	Capped risk; profitable if stock shows high volatility after you are in.	Capped reward; awkward to adjust.
Long Call Synthetic Straddle	Sell one stock and buy two ATM calls.	Capped risk; profitable if stock rises or falls significantly; uncapped reward; cheaper than doing a normal Straddle.	Low volatility required for entry whereas high volatility required once you are in.
Long Put Synthetic Straddle	Buy one stock and two ATM puts.	Capped risk; profitable if stocks rises or falls significantly; uncapped reward.	Even more expensive than normal Straddle; low volatility required for entry, whereas high volatility required once you are in.
Short Call Synthetic Straddle	Buy one stock and sell two ATM calls.	Profitable if stock shows low volatility and does not move.	Uncapped risk on either side; expensive because you are buying the stock.
Short Put Synthetic Straddle	Sell one stock and two ATM puts.	Cheap strategy that brings in a net credit to your account; profitable if stock shows low volatility and does not move.	Uncapped risk on either side; large margin required.
Long Iron Butterfly	Buy lower strike put, sell mid strike put, sell next mid strike call, and buy higher strike call. (Middle strikes can be the same.)	Cheap strategy that brings in a net credit to your account; capped risk; profitable if stock doesn't move much; capped risk.	Capped reward; margin required.
Short Iron Butterfly	Sell lower strike put, buy mid strike put, buy next mid strike call, and sell higher strike call. (Middle strikes can be the same.)	Capped risk.	Expensive strategy.
Calendar Call	Buy long-term call and sell shorter- term call (same strikes).	Capped risk; can sell the shorter-term calls on a monthly basis in order to generate income.	Capped reward; can become loss-making if the underlying asset rises too much.
Calendar Put	Buy long-term put and sell shorter-term put (same strikes).	Capped risk; can sell the shorter-term calls on a monthly basis in order to generate income.	Capped reward; can become loss-making if the underlying asset rises too much.
Diagonal Call	Buy long-term lower strike call and sell shorter-term higher strike call.	Capped risk; can sell the shorter-term calls on a monthly basis in order to generate income.	Capped reward.
Diagonal Put	Sell shorter-term lower strike put and buy longer-term higher strike put.	Capped risk; can sell the shorter-term calls on a monthly basis in order to generate income.	Capped reward.
Guts	Buy lower strike calls and higher strike puts.	Capped risk; profitable if stocks rises or falls significantly; uncapped reward.	Expensive because you're buying ITM options.
Short Guts	Sell lower strike calls and higher strike puts.	Net credit into your account; profitable if stock shows low volatility and does not move.	Uncapped risk on either side.
Long Synthetic Future	Buy ATM call and sell ATM put.	Simulates going short on a stock with no or very little net debit or credit.	Same leverage as the underlying.
Short Synthetic Future	Sell ATM call and buy ATM put.	Simulates going long on a stock with no or very little net debit or credit.	Same leverage as the underlying.
Long Combo	Sell OTM (lower) put and buy OTM (higher) call.	Almost simulates going long on a stock with no or very little net debit or credit.	Same leverage as the underlying.
Short Combo	Buy OTM (lower) put and sell OTM (higher) call.	Almost simulates going short on a stock with no or very little net debit or credit.	Same leverage as the underlying.
Long Box	Buy one low strike call, sell one same strike put; sell one higher strike call, and buy one same higher strike put; all same expiration dates.	Create a completely hedged position where the ultimate profit is known with certainty ahead of time.	Complicated, requires many contracts to be effective. Bid/Ask spread makes it difficult to guarantee a profitable position.

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Contents

Appendix A. Strategy Table