What is Single Option Strategy?
A single option strategy or the single-legged strategy is the basic form of trading options. You either buy a single call option or put option, or sell a single call option or put option.
What is a Long Call?
When you expect the stock price to go up before the expiration date, you buy a call option. Buying a call option makes it a ‘long call’.
What is a Long Put?
When you expect the stock price to go down before the expiration date, you buy a put option. Buying a put options makes it a ‘long put’
What is a Short Call?
When you write a call option, you are obligated to sell shares at the strike price if the option buyer exercises his or her option. Selling a call option makes this position a ‘short call’
What is a Short Put?
When you write a put option, you are obligated to buy the shares at the strike price if the option buyer exercises his or her option. Selling a put option makes this strategy a ‘short put’
What is Covered Stock Option Strategy?
A covered stock strategy is executed by writing a call option when you have the long stock position (you own 100 shares per call option you are writing) to cover it. Similarly, for put options, when you write a put option and have a ‘short’ stock position to cover the put option, it is considered a covered stock strategy
What is a Covered Call?
When you are mildly bullish or neutral on a stock, you write a covered call to earn some premium on stock you already own. In a covered call, you write (sell) a call option against an equivalent long stock position (you own 100 shares per call option contract you write).
Long Stock Position + Short Call Option
What is a Covered Put?
When you are mildly bearish or neutral on a stock, you write a covered put to earn some premium on a ‘short’ stock position you own. In a covered put, you write (sell) a put option against an equivalent ‘short’ stock position.
Short Stock Position + Short Put Option
A related concept is ‘Cash secured Put’ in which instead of having a ‘short’ stock position, you can use an equivalent amount of cash as a collateral against the put option.
What is Straddle Strategy?
In straddle strategy, you buy or sell 1 call option and 1 put option with the same strike price and same expiration date.
What is a Long Straddle?
You create a long straddle when you believe the stock price will move significantly in one direction or another before the expiration date. A long straddle is created by simultaneously buying a call option and a put option with the same strike price and same expiration date.
Creating a long straddle is a ‘net debit’ strategy, i.e. when you create a long straddle, you have to pay some money as premium.
A long straddle has a breakeven point on either side of the stock price. The investor makes a profit if the price goes
- higher than the breakeven point on higher side
- OR, lower than the breakeven point on lower side.
What is a Short Straddle?
You create a short straddle when you believe the stock price will stay confined within a certain price band until the expiration date. A short straddle is created by simultaneously selling a call option and a put option with the same strike price and same expiration date.
Creating a short straddle is a ‘net credit’ strategy, i.e. when you create a short straddle, you collect some money as premium.
A short straddle has a breakeven point on either side to the stock price. The investor makes a profit if the price remains in the ‘breakeven price’ band, i.e.
- lower than the breakeven point on higher side
- AND, higher than the breakeven point on lower side.
What is a Strangle Strategy?
Strangle strategy is similar to a Straddle Strategy. In Strangle Strategy, you buy or sell a call option and a put option of the same expiration date, but different strike prices (hence being different from a Straddle strategy).
What is a Long Strangle?
You create a long strangle when you believe the stock price will move significantly in one direction or another before the expiration date. A long strangle is created by simultaneously buying a call option and a put option with same expiration date, but DIFFERENT strike prices.
Creating a Long strangle is a ‘net debit’ strategy, i.e. when you create a long strangle, you have to pay some money as premium.
A long strangle has a breakeven point on either side of the stock price. The investor makes a profit if the price goes
- higher than the breakeven point on higher side
- OR, lower than the breakeven point on lower side.
What is a Short Strangle?
You create a short strangle when you believe the stock price will stay confined within a certain price band until the expiration date. A short strangle is created by simultaneously selling a call option and a put option with the same expiration date, but DIFFERENT strike prices.
Creating a short strangle is a ‘net credit’ strategy, i.e. when you create a short strangle, you collect some money as premium.
A short strangle has a breakeven point on either side to the stock price. The investor makes a profit if the price remains in the ‘breakeven price’ band, i.e.
- lower than the breakeven point on higher side
- AND, higher than the breakeven point on lower side.
What is a Vertical Options Strategy?
Vertical Options Strategy involves buying and selling of multiple stock options (same type – either call options or put options) with same expiration date, but different strike prices.
What is a Long Call Vertical?
In Long Call Vertical, you buy a call option with a lower strike price and simultaneously sell a call option with higher strike price – both call options should have the same expiration date.
You create a Long call Vertical when you expect the stock price to go up before the expiration date.
What is a Long Put Vertical?
In Long Put Vertical, you buy a put option with a higher strike price and simultaneously sell a put option with a lower strike price – both the put options should have the same expiration date.
You create a Long Put Vertical when you expect the stock price to go down before the expiration date.
What is a Short Call Vertical?
In Short Call Vertical, you sell a call option with a lower strike price and simultaneously buy a call option at higher strike price – both the call options should have the same expiration date.
You create a Short Call Vertical when you expect the stock price to go down or stay neutral before the expiration date.
What is a Short Put Vertical?
In Short Put Vertical, you sell a put option with a higher strike price and simultaneously buy a put option with a lower strike price – both the put options should have the same expiration date.
You create a Short Put Vertical when you expect the stock price to go up or stay neutral before the expiration date.
What is a Butterfly Options Strategy?
A Butterfly Options Strategy is a combination of bear and bull spreads. Each Butterfly Options Strategy involves four stock options (of the same type – either 4 call options, or 4 put options) with the same expiration date and THREE different strike prices. Refer the chart below – in a butterfly spread the strike price in the middle has two positions.
Butterfly Options can be of the following types:
- Long Call Butterfly
- Short Call Butterfly
- Long Put Butterfly
- Short Put Butterfly



We have a dedicated post on Butterfly Options explained with examples.
What is an Iron Butterfly Strategy?
If you recall, in a ‘regular’ butterfly strategy as described above, we use four stock options of one type – either all call options, or all put options. But, in an iron butterfly we use four stock options, with a combination of 2 call options and 2 put options, with THREE strike prices, with same expiration dates.
What is a Long Iron Butterfly?
In a Long Iron Butterfly, you BUY two stock options (one call option and one put option) at-the-money, sell one out-of-money call option, and sell one out-of-money put option. All four stock options should have the same expiration date.
What is a Short Iron Butterfly?
In a Short Iron Butterfly, you SELL two stock options (one call option and one put option) at-the-money, buy one out-of-money call option, and buy one out-of-money put option. All four stock options should have the same expiration date.
What is a Condor Option Strategy?
A Condor Options Strategy is very similar to Butterfly Option Strategy. Condor is a combination of four stock options (of the same type – either 4 call options, or 4 put options) with the same expiration date and FOUR different strike prices (hence different from a Butterfly Spread). Refer the chart below – in a butterfly spread the strike price in the middle has two positions.
Condor Options can be of the following types:
- Long Call Condor
- Short Call Condor
- Long Put Condor
- Short Put Condor
What is an Iron Condor Strategy?
As explained in section above, a Condor is a combination of four stock options of the same type. In an Iron Condor, we still use 4 stock options with the same expiration date and different strike prices. However, we use a combination of 2 call options and 2 put options to create an Iron Condor.
Long Iron Condor
In a Long Iron Condor, you buy one call option + one put option near the current stock price, sell one further out-of-money call option, and sell one further out-of-money put option. All four stock options should have the same expiration date.
Bear Put Spread + Bull Call Spread
Short Iron Condor
In a Short Iron Condor, you sell one call option + one put option near the current stock price, buy one further out-of-money call option, and buy one further out-of-money put option. All four stock options should have the same expiration date.
Bull Put Spread + Bear Call Spread
What is a Collar Option Strategy?
A Collar Option Strategy is used to protect you against big losses on one side, but it also limits your potential gains.
What is a Long Collar?
In a Long Collar, you own the shares of the stock, sell an out-of-money call option against it, and simultaneously buy an out-of-money put option. The call and put options must have the same expiration date.
What is a Short Collar?
In a Short Collar, you ‘short’ sell shares of the stock, sell an out-of-money put option against it, and simultaneously buy an out-of-money call option. The call and put options must have the same expiration date.
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