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Bear Call Spread

A bear call spread is a limited-risk-limited-reward strategy, consisting of one short call option and one long call option. This strategy generally profits if the stock price holds steady or declines. 

The most it can generate is the net premium received at the outset. If the forecast is wrong and the stock rallies instead, the losses grow only until long call caps the amount.

Bear Put Spread

A bear put spread consists of buying one put and selling another put, at a lower strike, to offset part of the upfront cost. The spread generally profits if the stock price moves lower. The potential profit is limited, but so is the risk should the stock unexpectedly rally. 

Bear Spread Spread

This strategy is the combination of a bear put spread and a bear call spread.  A key part of the strategy is to initiate the position at even money, so the cost of the put spread should be offset by the proceeds from the call spread.

Bull Call Spread

This strategy consists of buying one call option and selling another at a higher strike price to help pay the cost. The spread generally profits if the stock price moves higher, just as a regular long call strategy would, up to the point where the short call caps further gains.

Bull Put Spread

A bull put spread is a limited-risk-limited-reward strategy, consisting of a short put option and a long put option with a lower strike. This spread generally profits if the stock price holds steady or rises.

Bull Spread Spread

This strategy is the combination of a bull call spread and a bull put spread.  A key part of the strategy is to initiate the position at even money, so the cost of the call spread should be offset by the proceeds from the put spread.

Cash-Backed Call

This strategy allows an investor to purchase stock at the lower of strike price or market price during the life of the option.

Cash-Secured Put

The cash-secured put involves writing a put option and simultaneously setting aside the cash to buy the stock if assigned. If things go as hoped, it allows an investor to buy the stock at a price below its current market value. 

The investor must be prepared for the possibility that the put won't be assigned. In that case, the investor simply keeps the interest on the T-Bill and the premium received for selling the put option.

Collar

The investor adds a collar to an existing long stock position as a temporary, slightly less-than-complete hedge against the effects of a possible near-term decline. The long put strike provides a minimum selling price for the stock, and the short call strike sets a maximum price.

Covered Call

This strategy consists of writing a call that is covered by an equivalent long stock position. It provides a small hedge on the stock and allows an investor to earn premium income, in return for temporarily forfeiting much of the stock's upside potential.

Covered Put

This strategy is used to arbitrage a put that is overvalued because of its early-exercise feature.  The investor simultaneously sells an in-the-money put at its intrinsic value and shorts the stock, and then invests the proceeds in an instrument earning the overnight interest rate.  When the option is exercised, the position liquidates at breakeven, but the investor keeps the interest earned.

Covered Ratio Spread

This strategy profits if the underlying stock moves up to, but not above, the strike price of the short calls.  Beyond that, the profit is eroded and then hits a plateau.

Covered Strangle

This strategy is appropriate for a stock considered to be fairly valued.  The investor has a long stock position and is willing to sell the stock if it goes higher or buy more of the stock if it goes lower.

Long Call

This strategy consists of buying a call option. It is a candidate for investors who want a chance to participate in the underlying stock's expected appreciation during the term of the option. If things go as planned, the investor will be able to sell the call at a profit at some point before expiration.

Long Call Butterfly

This strategy profits if the underlying stock is at the body of the butterfly at expiration.

Long Call Calendar Spread

This strategy combines a longer-term bullish outlook with a near-term neutral/bearish outlook.  If the underlying stock remains steady or declines during the life of the near-term option, that option will expire worthless and leave the investor owning the longer-term option free and clear.  If both options have the same strike price, the strategy will always require paying a premium to initiate the position.

Long Call Condor

This strategy profits if the underlying security is between the two short call strikes at expiration.

Long Condor

This strategy profits if the underlying stock is outside the outer wings at expiration.

Long Iron Butterfly

This strategy profits if the underlying stock is outside the wings of the iron butterfly at expiration.

Long Put

This strategy consists of buying puts as a means to profit if the stock price moves lower.  It is a candidate for bearish investors who want to participate in an anticipated downturn, but without the risk and inconveniences of selling the stock short.

The time horizon is limited to the life of the option.

Long Put Butterfly

This strategy profits if the underlying stock is at the body of the butterfly at expiration.

Long Put Calendar Spread

This strategy combines a longer-term bearish outlook with a near-term neutral/bullish outlook.  If the stock remains steady or rises during the life of the near-term option, it will expire worthless and leave the investor owning the longer-term option.  If both options have the same strike price, the strategy will always require paying a premium to initiate the position.

Long Put Condor

This strategy profits if the underlying security is between the two short put strikes at expiration.

Long Ratio Call Spread

The initial cost to initiate this strategy is rather low, and may even earn a credit, but the upside potential is unlimited.  The basic concept is for the total delta of the two long calls to roughly equal the delta of the single short call.  If the underlying stock only moves a little, the change in value of the option position will be limited.  But if the stock rises enough to where the total delta of the two long calls approaches 200 the strategy acts like a long stock position.

Long Ratio Put Spread

The initial cost to initiate this strategy is rather low, and may even earn a credit, but the downside potential is substantial.  The basic concept is for the total delta of the two long puts to roughly equal the delta of the single short put.  If the underlying stock only moves a little, the change in value of the option position will be limited.  But if the stock declines enough to where the total delta of the two long puts approaches 200 the strategy acts like a short stock position.

Long Stock

This strategy is simple. It consists of acquiring stock in anticipation of rising prices. The gains, if there are any, are realized only when the asset is sold. Until that time, the investor faces the possibility of partial or total loss of the investment, should the stock lose value.

In some cases the stock may generate dividend income.

In principle, this strategy imposes no fixed timeline. However, special circumstances could delay or accelerate an exit. For example, a margin purchase is subject to margin calls at any time, which could force a quick sale unexpectedly.

Long Straddle

This strategy consists of buying a call option and a put option with the same strike price and expiration. The combination generally profits if the stock price moves sharply in either direction during the life of the options.

Long Strangle

This strategy profits if the stock price moves sharply in either direction during the life of the option.

Naked Call

This strategy consists of writing an uncovered call option. It profits if the stock price holds steady or declines, and does best if the option expires worthless.

Naked Put

A naked put involves writing a put option without the reserved cash on hand to purchase the underlying stock. 

 This strategy entails a great deal of risk and relies on a steady or rising stock price. It does best if the option expires worthless.

Protective Put

This strategy consists of adding a long put position to a long stock position. The protective put establishes a 'floor' price under which investor's stock value cannot fall.

If the stock keeps rising, the investor benefits from the upside gains. Yet no matter how low the stock might fall, the investor can exercise the put to liquidate the stock at the strike price.

Short Call Butterfly

This strategy profits if the underlying stock is outside the wings of the butterfly at expiration.

Short Call Calendar Spread

This strategy profits from the different characteristics of near and longer-term call options.  If the stock holds steady, the strategy suffers from time decay.  If the underlying stock moves sharply up or down, both options will move toward their intrinsic value or zero, thus narrowing the difference between their values.  If both options have the same strike price, the strategy will always receive a premium when initiating the position.

Short Condor

This strategy profits if the underlying stock is inside the inner wings at expiration.

Short Iron Butterfly

This strategy profits if the underlying stock is inside the wings of the iron butterfly at expiration.

Short Put Butterfly

This strategy profits if the underlying stock is outside the wings of the butterfly at expiration.

Short Put Calendar Spread

This strategy profits from the different characteristics of near and longer-term put options.  If the underlying stock holds steady, the strategy suffers from time decay.  If the stock moves sharply up or down, both options will move toward their intrinsic value or zero, thus narrowing the difference between their values.  If both options have the same strike price, the strategy will always receive a premium when initiating the position.

Short Stock

A candidate for bearish investors who wish to profit from a depreciation in the stock's price. The strategy involves borrowing stock through the brokerage firm and selling the shares in the marketplace at the prevailing price. The goal is to buy them back later at a lower price, thereby locking in a profit.

Short Straddle

This strategy involves selling a call option and a put option with the same expiration and strike price. It generally profits if the stock price and volatility remain steady.

Short Strangle

This strategy profits if the stock price and volatility remain steady during the life of the options.

Short Ratio Call Spread

This strategy can profit from a steady stock price, or from a falling implied volatility.  The actual behavior of the strategy depends largely on the delta, theta and Vega of the combined position as well as whether a debit is paid or a credit received when initiating the position.

Short Ratio Put Spread

This strategy can profit from a slightly falling stock price, or from a rising stock price.  The actual behavior of the strategy depends largely on the delta, theta and vega of the combined position as well as whether a debit is paid or a credit received when initiating the position.

Synthetic Long Put

This strategy combines a long call and a short stock position. Its payoff profile is equivalent to a long put's characteristics. The strategy profits if the stock price moves lower--the more dramatically, the better.  The time horizon is limited to the life of the option.

Synthetic Long Stock

This strategy is essentially a long futures position on the underlying stock. The long call and the short put combined simulate a long stock position. The net result entails the same risk/reward profile, though only for the term of the option: unlimited potential for appreciation, and large (though limited) risk should the underlying stock fall in value.

Synthetic Short Stock

This strategy is essentially a short futures position on the underlying stock. The long put and the short call combined simulate a short stock position. The net result entails the same risk/reward profile, though only for the term of the options: limited but large potential for appreciation if the stock declines, and unlimited risk should the underlying stock rise in value.

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