What are option strategies and its types? | List all the option strategies

Let’s discover the fascinating world of option strategies! You are not only betting that a stock will go up or down. Rather, you are, in fact, building a plan, a strategy, to use any market price action to your advantage! This is what it is to have options strategies – a full toolbox of different ways to express your view of the market, whether you are anticipating calm, a rocket ride or something in between.

Options strategies apply to options contracts to provide a specific investment viewpoint. Strategies can be simple and complex, allowing the investor to risk manage, income generate, or speculate on the movement of the underlying agent. They can be defensive in nature to protect long positions or income generating or directionally bet against the market.

What are Option Strategies?

Option strategies are variations of different plan or recipe you can use to execute options trades or accomplish a certain financial objective. For example, consider options to be a specific type of contract that gives you the right to buy or sell a stock at a specified price by a specified date. A basic strategy could simply be a bet that a stock will either go up or down. More sophisticated strategies take multiple options contracts and combine them to develop a customized risk profile. This flexibility allows traders to profit not just when a stock moves up or down, but also sometimes when a stock doesn’t move, moves within a defined price range, or even becomes much more volatile. At the end of the day, strategies are effectively similar to the tools found in a toolbox, each suited for a particular market event. a large price swing, no price movement, or somewhere in the middle.

Types of option strategies

Directional Strategies:

These are the simplest and most common. They are simple bets of which way a stock price will move.

• Bullish Strategies: This is when you think the stock price will go up. Some examples are the simple and high-reward Call Option and Bull Call Spread which will cost less, but won’t reward the same profit.
• Bearish Strategies: This is when you think the stock price will go down. A couple of examples are a Put Option or a Bear Put Spread.

Non-Directional / Neutral Strategies:

The use of strategies, you have a view on the stock’s movement, other than that it will move straight up or straight down.

• Volatility Strategies: You only have a view of how much the stock will move, without regard to which direction.
  • High Volatility Bets: You believe some significant price movement is coming but are uncertain as to whether it is up or down. The Long Straddle (buying a call and put with the same strike price) is a traditional example.
  • Low Volatility Bets: You believe the stock’s price will likely remain quite stable and not move much. The Short Iron Condor is a common strategy for profiting from low volatility and time decay.

Economically productive strategies:

Traders plan these strategies when they want income on stocks that they own or are willing to own.

• The most frequently used is referred to as a Covered Call. It works like this: Assume you own 100 shares of a company. You could sell a call option against the 100 shares and collect the premium as income. Although this provides further income to your portfolio, it limits your upside potential for the position if the stock were to move sharply higher.

Hedging / Protective Strategies:

These are basically a form of insurance to cover your current stock investments with a downside.

• The classic example of this is a Protective Put. You can think of it as buying insurance for your home. If you own a stock, you can buy a put option on that stock. If the stock price collapses, the put option will increase in value and offset your stock’s loss, thereby protecting your overall portfolio.

Complete List of Option Strategies (Classified by Complexity & Purpose)

#	Strategy Name	Type	Components	Purpose
1	Long Call	Basic	Buy 1 Call	Bullish, limited risk
2	Long Put	Basic	Buy 1 Put	Bearish, limited risk
3	Short Call (Naked Call)	Basic	Sell 1 Call	Neutral to bearish, unlimited risk
4	Short Put (Naked Put)	Basic	Sell 1 Put	Neutral to bullish, high risk
5	Covered Call	Income	Long Stock + Sell OTM Call	Mildly bullish, income
6	Protective Put (Married Put)	Hedge	Long Stock + Buy Put	Bullish with downside protection
7	Bull Call Spread	Debit Spread	Buy ITM/ATM Call + Sell OTM Call	Moderately bullish, limited risk/reward
8	Bear Put Spread	Debit Spread	Buy ITM/ATM Put + Sell OTM Put	Moderately bearish, limited risk/reward
9	Bull Put Spread	Credit Spread	Sell ITM/ATM Put + Buy OTM Put	Mildly bullish, limited risk/reward
10	Bear Call Spread	Credit Spread	Sell ITM/ATM Call + Buy OTM Call	Mildly bearish, limited risk/reward
11	Long Straddle	Volatility	Buy ATM Call + Buy ATM Put	High volatility expected, unlimited profit
12	Long Strangle	Volatility	Buy OTM Call + Buy OTM Put	High volatility, lower cost than straddle
13	Short Straddle	Volatility	Sell ATM Call + Sell ATM Put	Low volatility, high risk
14	Short Strangle	Volatility	Sell OTM Call + Sell OTM Put	Low volatility, defined risk
15	Collar	Hedge	Long Stock + Buy Put + Sell Call	Cost-reduced protection
16	Synthetic Long Stock	Synthetic	Buy ATM Call + Sell ATM Put	Bullish, mimics stock
17	Synthetic Short Stock	Synthetic	Sell ATM Call + Buy ATM Put	Bearish, mimics short stock
18	Long Call Butterfly	Neutral	Buy 1 ITM Call + Sell 2 ATM Calls + Buy 1 OTM Call	Low volatility, pinpoint target
19	Long Put Butterfly	Neutral	Buy 1 ITM Put + Sell 2 ATM Puts + Buy 1 OTM Put	Low volatility, bearish bias
20	Iron Butterfly	Neutral	Sell ATM Straddle + Buy OTM Strangle	Low volatility, credit strategy
21	Long Call Condor	Neutral	Buy deep ITM Call + Sell ITM Call + Sell OTM Call + Buy deep OTM Call	Range-bound, wider range than butterfly
22	Long Put Condor	Neutral	Similar structure with puts	Range-bound
23	Iron Condor	Neutral	Sell OTM Call Spread + Sell OTM Put Spread	Low volatility, high probability
24	Call Ratio Spread	Ratio	Buy 1 ITM/ATM Call + Sell 2 OTM Calls	Bullish with volatility skew
25	Put Ratio Spread	Ratio	Buy 1 ITM/ATM Put + Sell 2 OTM Puts	Bearish with skew
26	Call Ratio Backspread	Ratio	Sell 1 ITM Call + Buy 2 OTM Calls	Strongly bullish, free or credit
27	Put Ratio Backspread	Ratio	Sell 1 ITM Put + Buy 2 OTM Puts	Strongly bearish
28	Jade Lizard	Income	Sell OTM Put + Sell OTM Call (no upside risk)	Neutral to bullish, no upside risk
29	Twisted Sister	Income	Sell OTM Call + Sell slightly OTM Put + Buy further OTM Put	Asymmetric income
30	Calendar Spread (Call)	Time	Sell near-term Call + Buy longer-term Call (same strike)	Neutral to bullish, time decay
31	Calendar Spread (Put)	Time	Sell near-term Put + Buy longer-term Put	Neutral to bearish
32	Diagonal Spread	Hybrid	Buy long-term OTM Call + Sell short-term ITM/ATM Call	Bullish with income
33	Double Diagonal	Hybrid	Sell short-term strangle + Buy longer-term strangle	Volatility + time decay
34	Christmas Tree (Call)	Debit	Buy 1 ITM Call + Sell 3 OTM Calls (skip strikes)	Moderately bullish
35	Christmas Tree (Put)	Debit	Buy 1 ITM Put + Sell 3 OTM Puts	Moderately bearish
36	Ladder (Call)	Debit	Buy 1 ITM Call + Sell 1 ATM Call + Sell 1 OTM Call	Strongly bullish
37	Ladder (Put)	Debit	Buy 1 ITM Put + Sell 1 ATM Put + Sell 1 OTM Put	Strongly bearish
38	Skip Strike Butterfly	Modified	Buy 1 ITM + Sell 2 middle (skip) + Buy 1 far OTM	Wider profit zone
39	Broken Wing Butterfly	Asymmetric	Unequal wing sizes (e.g., buy 100C, sell 2 110C, buy 125C)	Skewed risk/reward
40	Guts	Volatility	Buy ITM Call + Buy ITM Put	Like straddle but ITM (higher cost)

Conclusion

To summarize, option strategies provide a wide range of ways to take a position in the market with specific tools to manage risk, generate income, and speculate on price moves. By better understanding option strategies, you can enhance your personal strategies based on your investment goals and market outlook, which can translate to improved overall performance in your investments.

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