Common Option Strategies
Advanced10 min readUpdated Apr 10, 2026
Single-leg options are straightforward: buy a call if you're bullish, buy a put if you're bearish. But most option traders quickly move beyond single legs into multi-leg strategies that shape the payoff to match a specific view — directional, neutral, or volatility-based — with defined risk.
This article covers the strategies you'll encounter most often. Each one solves a different problem. The goal isn't to memorize them all but to understand the logic behind each structure so you can choose the right tool for the situation. You can model any of these in the strategy builder to see the exact payoff before committing capital.
Directional Strategies
Bull Call Spread
Structure: Buy a call at a lower strike, sell a call at a higher strike. Same expiration.
Stock at $100. Buy the $100 call for $5.00, sell the $110 call for $2.00. Net cost: $3.00.
Max Profit
$7.00 (at $110+)
Max Loss
$3.00 (net debit)
Breakeven
$103
Why use it: You're bullish but don't want to pay full price for a call. Selling the higher strike offsets part of the cost. The trade-off is capped upside — you give up gains above the short strike. Bull call spreads are one of the most capital-efficient directional trades.
Watch for: The short call caps your profit, so this isn't the trade for a stock you think might double. It works best when you have a target price in mind. Theta works against you (net debit position), so you still need the stock to move before expiration.
Bear Put Spread
Structure: Buy a put at a higher strike, sell a put at a lower strike. Same expiration.
Stock at $100. Buy the $100 put for $4.50, sell the $90 put for $1.50. Net cost: $3.00.
Max Profit
$7.00 (at $90−)
Max Loss
$3.00 (net debit)
Breakeven
$97
Why use it: The bearish mirror of a bull call spread. Cheaper than a naked put, with defined risk on both sides. Effective when you expect a moderate decline rather than a collapse.
Watch for: Same dynamics as the bull call spread in reverse. Theta erodes value, and you need the stock to move down before expiration. The short put caps your profit if the stock collapses further than the lower strike.
Income Strategies
Covered Call
Structure: Own 100 shares of stock. Sell one call against them.
Own stock at $100. Sell the $110 call for $2.50. Collect $250 per contract.
Max Profit
$12.50 (appreciation + premium)
Max Loss
Full stock downside − $2.50
Breakeven
$97.50
Why use it: You already own shares and are willing to sell them at the strike price. The premium provides income and a small buffer against declines. It's the most common income strategy for stock holders and one of the most conservative option trades.
Watch for: If the stock surges past the strike, you deliver shares and miss the upside beyond $110. If the stock drops significantly, the $2.50 premium barely cushions the loss. Covered calls work best on stocks you're comfortable holding long-term, with strikes at levels where you'd be happy to sell.
Protective Put
Structure: Own 100 shares of stock. Buy one put.
Own stock at $100. Buy the $95 put for $2.00. Your downside is floored at $95.
Max Profit
Unlimited upside − premium
Max Loss
$7.00 ($5 gap + $2 premium)
Breakeven
$102 (need to recover premium)
Why use it: Portfolio insurance. You want to stay long the stock but need a floor — maybe ahead of earnings, a macro event, or simply to sleep at night. The put guarantees you can sell at $95 regardless of what happens.
Watch for: The cost of protection adds up if you roll puts every month. Protective puts are most useful for specific event risk, not as a permanent hedge. Over long periods, the cumulative premium drag can materially reduce returns.
Volatility Strategies
Long Straddle
Structure: Buy a call and a put at the same strike, same expiration. Typically ATM.
Stock at $100. Buy the $100 call for $4.50 and the $100 put for $4.00. Total cost: $8.50.
Max Profit
Unlimited (upside) / Substantial (downside)
Max Loss
$8.50 (total premium)
Breakeven
$91.50 / $108.50
Why use it: You expect a big move but don't know the direction. Earnings announcements, FDA rulings, legal verdicts — anything where the outcome is binary and large. You're explicitly long volatility and long gamma.
Watch for: Straddles are expensive because you're buying two ATM options. IV is usually elevated before the events where straddles seem most attractive, which means you're buying at peak prices. The stock needs to move more than the market already expects, not just 'a lot.' Check the implied move against your own expectation.
Long Strangle
Structure: Buy an OTM call and an OTM put, same expiration.
Stock at $100. Buy the $105 call for $2.50 and the $95 put for $2.00. Total cost: $4.50.
Max Profit
Unlimited (upside) / Substantial (downside)
Max Loss
$4.50 (total premium)
Breakeven
$90.50 / $107.50
Why use it: Similar thesis to a straddle — expecting a big move — but cheaper because both options are OTM. The trade-off is wider breakevens: the stock needs to move further before you profit.
Watch for: Same vol crush risk as straddles. Strangles also have lower gamma than straddles (both legs are OTM), so you need a larger move to generate the same dollar profit. They're useful when you think the straddle is overpriced but still want volatility exposure.
Neutral / Range-Bound Strategies
Iron Condor
Structure: Sell an OTM put spread and sell an OTM call spread, same expiration. Four legs total.
Stock at $100.
• Sell $90 put, buy $85 put (put spread)
• Sell $110 call, buy $115 call (call spread)
Total credit: $2.00
Max Profit
$2.00 (net credit)
Max Loss
$3.00 (spread width − credit)
Breakeven
$88 / $112
Why use it: You think the stock will stay in a range. You're selling volatility — collecting premium from both sides and betting that the stock doesn't make a large move. Iron condors are the classic theta-harvesting, short-volatility trade.
Watch for: A single large move can push you to max loss quickly. Iron condors are short gamma — as the stock approaches either short strike, your delta exposure grows and the position becomes increasingly difficult to manage. Avoid holding through earnings or binary events.
Butterfly Spread
Structure: Buy one lower-strike call, sell two middle-strike calls, buy one upper-strike call. Equal spacing.
Stock at $100.
• Buy $95 call, sell 2× $100 calls, buy $105 call
Net debit: $1.50
Max Profit
$3.50 (at $100 exactly)
Max Loss
$1.50 (net debit)
Breakeven
$96.50 / $103.50
Why use it: You have a very specific price target. A butterfly is a cheap bet that the stock lands in a narrow range. The risk/reward ratio can be attractive — risking $1.50 to make $3.50 — but the stock needs to pin near the center strike.
Watch for: Butterflies are ultra-sensitive to where the stock closes relative to the middle strike. Even a few dollars off and the profit erodes quickly. They're more of a precision tool than a general-purpose strategy, most commonly used as expiration approaches.
Calendar Spread
Structure: Sell a near-term option, buy a longer-term option at the same strike.
Stock at $100. Sell the 30-day $100 call for $3.00, buy the 60-day $100 call for $4.50. Net debit: $1.50.
Max Profit
Near-term expiry at the strike (short expires, long retains value)
Max Loss
$1.50 (net debit)
Breakeven
Near the strike ± debit
Why use it: You're trading the term structure of volatility. If near-term IV is elevated relative to longer-term IV — common before earnings — selling the near-term option and buying the later one lets you benefit from the uneven vol crush.
Watch for: Calendars are long vega on the back-month option. If overall IV drops, both options lose value but the longer-dated one loses more. They also become directional as the short option approaches expiration — manage actively.
Choosing a Strategy
The right strategy depends on three things:
Your market view
Bullish, bearish, neutral, or purely a volatility opinion? Directional views point you toward spreads. Neutral views toward condors and butterflies. Volatility views toward straddles, strangles, and calendars.
Your risk tolerance
Defined-risk strategies (spreads, condors, butterflies) have a known max loss. Naked positions don't. If you're not comfortable with the max loss of a trade, either reduce size or choose a different structure. See Risks of Trading Options for a broader treatment.
The volatility environment
When IV is high, option premiums are expensive — selling strategies tend to have an edge. When IV is low, options are cheap — buying strategies can offer favorable risk/reward. Check IV against its own history before choosing. See Understanding Implied Volatility.
Build It Before You Trade It
Every strategy above can be modeled in the strategy builder. Enter the legs, adjust the strikes and expirations, and study the P&L diagram. Find the breakevens. Know the max loss. Understand how the Greeks aggregate across legs.
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