Options can do a lot more than bet on a stock going up. With the right combination you can earn income, insure a position, or profit from a stock going nowhere. Here are ten of the most common strategies, in one paragraph each, so you can find the one that fits what you think the market will do.
This page is a quick overview. For every strategy below there is a longer guide with maximum profit, maximum loss and breakeven, and the options strategies hub groups all 15 by market outlook. To see the payoff for your own numbers, use the options profit calculator.
1. Covered Call
You own a stock and sell a call option on it. The premium is income you keep no matter what, and it cushions a small drop. The trade-off is that if the stock rallies past the strike, your shares get sold there.
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2. Protective Put (Married Put)
You buy a put on a stock you already own. It works like insurance: whatever happens, you can sell at the strike price, so your loss has a floor.
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3. Straddle
You buy a call and a put at the same strike and expiration. It pays if the stock makes a big move in either direction, which makes it a common play before earnings when you expect fireworks but don’t know which way.
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4. Strangle
Like a straddle, but with an out-of-the-money call and an out-of-the-money put. It’s cheaper, but the stock has to move further before you make money.
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5. Iron Condor
A bet that the stock stays in a range. You sell an out-of-the-money call and put, and buy further-out ones to cap your risk. If the stock stays between your short strikes, you keep the credit.
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6. Butterfly Spread
A cheap, precise bet that the stock finishes near one price. It uses three strikes, and both the risk and the reward are limited.
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7. Calendar Spread (Time Spread)
You sell a near-term option and buy a longer-dated one at the same strike. The short one decays faster, so you profit if the stock stays near the strike for a while.
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8. Bull Call Spread
You buy a call and sell a higher-strike call to pay for part of it. It’s for when you’re moderately bullish: cheaper than a plain call, with the profit capped at the higher strike.
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9. Bear Put Spread
The mirror image of the bull call spread. You buy a put and sell a lower-strike put, for a cheaper bearish trade with a capped payoff.
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10. Covered Put
The bearish twin of the covered call. You’re already short the stock, and you sell a put against that short position. The premium is income, and if the stock falls to the strike, the put lets you close the short there. If the stock rallies, though, the premium only cushions a small part of the loss on the short.
None of these is the “best” strategy. Each one fits a different view of the market, and each comes with its own risks. Pick the one that matches what you actually expect, size it so the worst case is something you can live with, and check the numbers with the options profit calculator before you trade.