Knowledge Hub

Options are financial instruments that grant the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on or before a specific date. They are part of a broader category of financial instruments known as derivatives, which means their value is derived from the value of another asset, like stocks, bonds, or commodities.

Options are financial derivatives that grant the right to buy (call) or sell (put) an asset at a specified price before or at expiration. Their value is influenced by factors like time, volatility, and the asset’s price, measured using metrics called the Greeks.

Options are financial derivatives that grant the right to buy (call) or sell (put) an asset at a specified price before or at expiration. Their value is influenced by factors like time, volatility, and the asset’s price, measured using metrics called the Greeks.

Delta is a crucial concept in options trading, often considered the most important of the "Greeks" in options analysis. It measures how much the price of an option is expected to move per a one-point change in the price of the underlying asset. Essentially, delta provides a snapshot of the sensitivity of an option's price to movements in its underlying market

Gamma is a critical measure in options trading, representing the rate of change in an option's delta relative to a $1 change in the price of the underlying asset. While delta measures the sensitivity of an option's price to changes in the underlying asset's price, gamma measures the sensitivity of delta itself to those changes. This makes gamma a second-order (acceleration) measure of an option's price sensitivity

Theta is a fundamental concept in options trading, representing how the value of an option diminishes over time. This phenomenon, known as time decay, is crucial for traders to understand as it impacts the profitability of options as they approach expiration

Vega is a crucial measure in options trading, indicating how sensitive an option's price is to changes in the expected volatility of the underlying asset. It tells us how much the price of an option will change if the implied volatility of the underlying asset increases by one percentage point, assuming all other factors remain constant

Rho is a measure of how sensitive an option's price is to changes in interest rates. Specifically, it tells us the amount by which an option's premium is expected to change for each one percentage point change in the risk-free interest rate

A long call is a straightforward strategy used by traders who expect a stock or any other underlying asset to increase in price. It involves buying call options to capitalize on potential upward moves in asset prices.

A short call, also known as a naked call or uncovered call, is a high-risk option strategy used by traders who expect a stock or other underlying asset to either decline or stay below the strike price of the option sold. This strategy involves selling a call option without owning the underlying asset.

A long put is an options trading strategy used by investors who anticipate a decline in the price of an underlying asset. It involves purchasing put options to profit from expected downward price movements.

The short put, or naked put, is an options trading strategy where an investor sells put options without holding a position in the underlying asset. This strategy is used by traders who expect the underlying asset to remain stable or increase in price, allowing them to profit from the premium received from selling the puts.

The covered call is a popular options trading strategy that involves holding a long position in an underlying asset and selling a call option on the same asset. It's often used by investors looking to generate additional income from their stock holdings through the premiums received from selling the calls.

The protective put strategy is often employed by investors who want to hedge against downside risk while maintaining the potential for upside gains. It involves purchasing a put option for shares you already own, essentially acting as an insurance policy against significant stock price declines.

The Bull Call Spread, also known as a long call spread, is an options trading strategy used when an investor expects a moderate rise in the price of the underlying asset. It involves buying a call option at a lower strike price and selling another call option at a higher strike price within the same expiration period.

The Bear Put Spread is an options trading strategy utilised when an investor anticipates a moderate decline in the price of the underlying asset. It involves buying a put option at a higher strike price and selling another put option at a lower strike price within the same expiration period.

A Bear Call Spread is an options trading strategy used when an investor expects a moderate decrease in the price of the underlying asset. It involves selling a call option at a lower strike price and buying another call option at a higher strike price, both within the same expiration period.

A Bull Put Spread is an options trading strategy that's employed when an investor anticipates a moderate increase in the price of the underlying asset, or believes the asset will not fall significantly. This strategy involves selling a put option at a higher strike price and buying another put option at a lower strike price within the same expiration period.

The Ratio Call Spread, often referred to as a Front Spread with Calls, is an advanced options strategy used when an investor has a moderate bullish outlook on a stock but also wants to hedge against potential downside risk. This strategy involves buying calls at a lower strike price and selling a greater number of calls at a higher strike price within the same expiration period.

The Ratio Put Spread, also known as a Front Spread with Puts, is a sophisticated options trading strategy that is employed when an investor has a moderately bearish outlook on a stock but also wants to protect against upside risk. This approach involves buying put options at a higher strike price and selling a greater number of put options at a lower strike price, all within the same expiration period.

The Long Call Condor is an advanced options trading strategy used to target a specific trading range for a stock within a relatively narrow price band. This strategy is composed of two long call options at different strikes and two short call options at other strikes, all with the same expiration date. It’s ideal for expecting limited volatility around a particular price level.

The Long Put Condor is a refined options strategy designed to profit from a stock trading within a specific range, similar to its call counterpart but using put options. It involves buying and selling put options at different strike prices with the same expiration date. This strategy is perfect when you anticipate limited movement in the stock price within a defined range.

The Iron Condor is a popular options trading strategy used by traders who expect little to no movement in the underlying asset's price. It's essentially a combination of a bull put spread and a bear call spread, making it a non-directional strategy that benefits from the underlying asset staying within a certain range.

The Short Call Condor is an advanced options trading strategy used to capitalize on small price movements in the underlying asset. This strategy is similar to the Iron Condor but exclusively uses call options with different strike prices, structured to benefit from low volatility in the underlying asset.

The Short Put Condor is an options strategy designed to profit from a specific range within the underlying asset's price, similar to the Short Call Condor but using put options. This strategy involves selling two put options at different strike prices and buying two put options at even further strike prices, all with the same expiration date. It is best used when a trader expects little volatility and believes the stock will stay within a specific price range.

The Reverse Iron Condor is an options trading strategy designed to profit from significant movements in the underlying asset's price, regardless of the direction. This strategy is essentially the opposite of a traditional Iron Condor and involves buying both a bull put spread and a bear call spread. It is especially useful in highly volatile market environments where large price swings are expected.

A Long Straddle is a popular options trading strategy used to profit from significant price movements in either direction. By simultaneously buying a call option and a put option with the same strike price and expiration date, traders can capitalize on sharp upward or downward movements in the underlying asset's price, making it an ideal strategy in volatile market conditions.

A Short Straddle is an advanced options trading strategy where a trader simultaneously sells a call option and a put option with the same strike price and expiration date on the same underlying asset. This strategy is used when a trader expects the asset to experience low volatility and believes the stock price will remain relatively stable.

A Covered Short Straddle is an options strategy that combines elements of risk management with the potential for profit from a stable market. It involves selling a call and a put option with the same strike price and expiration date, while owning the underlying stock in sufficient quantity to cover the call option. This strategy is generally employed when the trader expects low volatility and believes the stock price will remain relatively stable around the strike price.

The Long Strangle is a straightforward options trading strategy designed to profit from significant movements in the underlying asset's price, regardless of the direction. This strategy involves buying a call option and a put option with the same expiration date but different strike prices, typically with the put having a lower strike and the call having a higher strike.

The Short Strangle is an advanced options trading strategy utilized to profit when the underlying asset's price remains within a specific range. This strategy involves selling a call option and a put option, both with the same expiration date but different strike prices. The call has a higher strike than the current stock price, and the put has a lower strike.

The Covered Short Strangle is a variation of the basic short strangle, designed to limit risk by owning the underlying asset while simultaneously selling a call and a put option. This strategy is employed when a trader expects minimal price movement in the underlying asset but seeks to enhance returns through premium collection, with a buffer against losses provided by ownership of the stock.

The Long Call Butterfly is an advanced options trading strategy that is used when a trader expects little to no movement in the underlying asset's price. It's a strategy that combines both bullish and bearish outlooks with limited risk and is designed to profit from a stock trading at or near a particular target price at expiration.

The Long Put Butterfly is a sophisticated options trading strategy utilized when an investor anticipates minimal movement in the underlying asset's price. It's particularly effective in a low-volatility environment, allowing the trader to benefit from stability in the stock price. This strategy involves placing bets on both directions of the price movement but with limited risk, aiming for profit when the stock price is near a specific target at expiration.

The Iron Butterfly is a neutral options strategy designed for traders who anticipate low volatility in the underlying asset's price. It combines both put and call options to generate profits primarily through the decay of option premiums with a controlled risk exposure. This strategy is a popular choice among traders who expect the stock to remain at or near a particular price by expiration.

The Short Call Butterfly is an options trading strategy employed by traders who anticipate little to no movement in the underlying asset but want to profit from high volatility in the option prices. This strategy is essentially the reverse of the Long Call Butterfly and aims to capitalize on the decay of option premiums.

The Short Put Butterfly is a complex options strategy designed for traders who expect minimal movement in the underlying asset's price but want to take advantage of elevated levels of implied volatility. This strategy involves a combination of buying and selling put options at three different strike prices but with the same expiration date, aiming to benefit from the theta decay while managing risk through defined maximum loss.

The Reverse Iron Butterfly is an advanced options trading strategy designed to profit from large, sharp movements in the underlying asset, while also having a defined risk profile. This strategy is essentially a combination of a long straddle and a short strangle, utilizing both calls and puts to capitalize on high volatility scenarios.

The Bull Call Ladder, also known as a Long Call Ladder, is an extension of the Bull Call Spread that involves buying and selling multiple call options at different strike prices. It's used to increase the profit potential beyond what a simple bull call spread could offer, typically during a modestly bullish market forecast but with an allowance for a larger upward move.

The Bull Put Ladder is an options trading strategy used to enhance the potential profit of a basic bull put spread when a trader expects a moderate rise in the underlying asset's price, but also seeks to increase profit potential if the asset's price rises significantly. This strategy involves selling a put option at a higher strike, buying a put at a lower strike, and then selling another put at an even lower strike, all within the same expiration period.

The Bear Call Ladder, also referred to as a Short Call Ladder, is an options trading strategy that extends the classic bear call spread to potentially increase profit if the underlying asset's price falls significantly. This strategy involves selling a call option at a lower strike, buying a call option at a middle strike, and then selling another call option at a higher strike, all with the same expiration.

The Bear Call Ladder in its typical form results in a credit to the trader's account, as it involves net selling of options—more specifically, selling more calls than are bought. If you are looking at a setup that results in a debit, it might actually be a different strategy or involve an additional layer, such as buying more long calls at different strikes or perhaps a misunderstanding of the terms.

The Bear Put Ladder is an extension of the basic bear put spread, a more complex strategy used when an investor anticipates a moderate to significant decline in the price of the underlying asset, but also wants to hedge against a potential upside risk. It involves buying one in-the-money put, selling one at-the-money put, and then selling another out-of-the-money put, all with the same expiration date.

The Long Call Ladder, also referred to as a Bull Call Ladder, is an options trading strategy that is essentially a variation of the Bull Call Spread with an additional sold call at a higher strike price. This strategy is typically used when the trader expects a moderate rise in the price of the underlying asset but also wants to hedge against a potential surge beyond a certain point.

The Long Call Spread, often referred to as a Bull Call Spread, is an options strategy used by traders who expect a moderate increase in the price of the underlying asset. It involves buying a call option at a lower strike price and selling another call option at a higher strike price within the same expiration period. This strategy aims to reduce the overall cost of the position while capping the maximum potential profit.

The Long Put Ladder, also known as the Bear Put Ladder, is an options trading strategy utilized when a trader has a bearish outlook on the underlying asset but also seeks to limit upfront costs and maximize potential return in scenarios of significant downside movement. This strategy involves buying put options at a higher strike price and selling more put options at two lower strike prices.

The Long Put Spread, also known as a Bear Put Spread, is a straightforward options trading strategy used when an investor expects a moderate decline in the price of the underlying asset. It involves purchasing a put option at a higher strike price and simultaneously selling another put option at a lower strike price, both with the same expiration date.

The Strip strategy is an options trading technique used when an investor expects significant volatility in the underlying asset's price with a stronger bearish bias. It involves purchasing more put options than call options on the same underlying asset with the same expiration date and strike price. Typically, the ratio is two puts for every one call. The strip is a variation of the more symmetric straddle, which is used when the direction of the move is uncertain but significant volatility is expected.

The Strap strategy is a more bullish counterpart to the Strip strategy in options trading. It's used when an investor anticipates significant volatility in the underlying asset's price with a stronger bullish bias. This strategy involves purchasing more call options than put options on the same underlying asset with the same expiration date and strike price. Typically, the ratio is two calls for every one put. The Strap is effectively a leveraged bet on volatility with an expectation of a more pronounced upward move.

The Long Guts strategy is a lesser-known but effective option trading tactic used when an investor expects significant movement in the underlying asset but is uncertain about the direction of the move. It's similar to the Long Strangle, but involves purchasing in-the-money (ITM) options, increasing the probability of a profitable outcome at the expense of higher initial cost.

The Short Guts strategy is a less common but intriguing options trading approach employed when an investor anticipates minimal movement in the underlying asset’s price. It’s essentially the opposite of the Long Guts strategy, involving the sale of in-the-money (ITM) options, both a call and a put. This setup allows the trader to collect a higher initial premium compared to out-of-the-money strategies like the Short Strangle, but also carries a higher risk due to the in-the-money nature of the options sold.

The Collar strategy is a risk management tool used in options trading that involves holding shares of the underlying stock while simultaneously using a protective put option and a covered call option. This approach is designed to limit potential losses while also capping gains, making it a favored strategy for investors looking to protect their investment against downturns without foregoing all upside potential.

The Long Combo strategy, also known as a synthetic long stock, is an options trading strategy used to simulate the payoff of owning a stock, but often at a lower cost. It involves buying a call option and selling a put option with the same expiration date and typically the same strike price. This strategy is designed to mimic the performance of a long stock position, giving the investor both the potential for unlimited gains and losses similar to owning the actual stock.

The Short Combo strategy, often referred to as a synthetic short stock, is an options trading approach that simulates the risk and reward profile of short selling a stock. This strategy is executed by selling a call option and buying a put option with the same expiration date and typically the same strike price. It's designed for investors who expect a significant decline in the underlying stock's price.

The Long Box Spread is an options trading strategy used to exploit differences in option price discrepancies. It involves creating a position that synthetically replicates a risk-free bond. This strategy is executed by simultaneously entering into a bull call spread and a bear put spread that share the same strike prices and expiration dates. It's typically employed when the combined cost of the spreads is less than the difference in their strike prices, suggesting mispricing by the market.

The Short Box Spread is essentially the inverse of the long box spread, utilized in options trading to capitalize on overpriced spreads rather than underpriced ones. It's constructed by reversing the positions in a long box spread, meaning you would sell a bull call spread and a bear put spread. This arbitrage strategy aims to generate a risk-free profit by exploiting pricing inefficiencies in option spreads.

The Call Vertical Spread, often referred to as a Bull Call Spread, is a directional trading strategy that speculates on a moderate increase in the price of the underlying asset. This strategy involves buying and selling call options on the same underlying asset with the same expiration date but different strike prices.

The Put Vertical Spread, commonly known as a Bear Put Spread, is a directional trading strategy used by traders who expect a moderate decrease in the price of the underlying asset. This strategy involves buying a put option at a higher strike price and selling another put option at a lower strike price, both with the same expiration date.

The Calendar Call Spread, often simply called a calendar spread or a time spread, is an options trading strategy that involves buying and selling call options with the same strike price but different expiration dates. This strategy is typically used to exploit differences in time decay and volatility between options with different expiration months.

The Calendar Put Spread, also known as a time spread or horizontal put spread, is an options trading strategy that involves the simultaneous purchase of a put option and the sale of another put option with the same strike price but different expiration dates. This strategy is designed to capitalize on the differing rates of time decay between the options and is often employed when the trader expects the underlying asset to exhibit low to moderate volatility.

The Diagonal Call Spread is a versatile options trading strategy that combines elements of both vertical and calendar spreads. It involves buying a long-term call option at a lower strike price and selling a short-term call option at a higher strike price. This strategy is designed to exploit differences in time decay and strike price for potential profit, particularly in moderately bullish scenarios.

The Diagonal Put Spread is an advanced options trading strategy similar to the diagonal call spread but uses put options instead. It involves buying a long-term put option at a higher strike price while selling a short-term put option at a lower strike price. This strategy is typically employed to capitalize on downward price movements of the underlying asset over time, combined with the benefits of time decay on the sold put.