Types of option strategies

The ability to manage risk vs.

These are all pretty basic strategies, just taking things up a notch. A call gives the buyer the right, but not the obligation, to buy the underlying asset at the purchased strike price.

A put gives the buyer the right, but not the obligation to sell the underlying asset at the purchased strike price. An options spread is any combination of multiple positions. This can include buying a call and selling a call, buying a put and selling a put, or buying stock and selling the call which would be a covered write.

5 basic options strategies explained | Futures Magazine

For our purposes, we are going to look more closely at a vertical call bull spread, which is used if we expect the price of the underlying stock to rise, although these same principles can be applied to bull put spreads, bear call spreads and bear put spreads.

Fundamentally, vertical spreads are a directional play, says Joseph Burgoyne, director of institutional and retail marketing for the Options Industry Council, which means the investor needs to have an opinion whether the underlying is going to go up or down. Additionally, while they have limited risk, they also have limited reward. You simply could buy either the stock or a single call, but by purchasing the bull call spread you are able to better limit your risk.

Additionally, our loss is limited to the cost of the spread.

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Option Types - Call Options and Put Options

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A better measure of risk. Using gaps to interpret market direction.

Option Trading Strategies | Option Strategy - The Options Playbook

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