Key Points to Remember: ALL options eventually lose ALL of their "time value." ALL "Out-Of-The-Money" options expire worthless. Markets only "trend" 1/3 of the time; they move sideways the other 2/3. BULLISH Market Strategies Option Spread Strategy Description Reason to use When to use Buy a Call Strongest bullish option position. Loss limited to premium paid. Undervalued option with volatility increasing. Sell a Put Neutral bullish option position. Profit limited to premium received. High volatility, bullish trending market. Buy Vertical Bull Call Spread Buy Call & sell Call of higher strike price. Loss limited to debit. Small debit, bullish market. Sell Vertical Bear Put Spread Sell Put & buy Put of lower strike price. Loss limited to strike price difference less premium received. Large credit, bullish market.   BEARISH Market Strategies Option Spread Strategy Description Reason to use When to use Buy a Put Strongest bearish option position. Loss limited to premium paid. Undervalued option with increasing volatility. Sell a Call Neutral bearish option position. Profit limited to premium received. Option overvalued, market flat to bearish. Buy Vertical Bear Put Spread Buy at the money Put & sell out of the money Put. Loss limited to debit. Small debit, bearish market. Sell Vertical Bull Call Spread Sell Call & buy Call of higher strike price. Loss limited to strike price difference minus credit. Large credit, bearish market.   NEUTRAL Market Strategies Option Spread Strategy Description Reason to use When to use Strangle Sell out of the money Put & Call. Maximum use of time value decay. Trading range market with volatility peaking. Arbitrage Buy & sell similar options simultaneously. Profit certain if done at credit. Any time credit received. Calendar Sell near month, buy far month, same strike price. Near month time value decays faster. Small debit, trading range market. Butterfly Buy at the money Call (Put) & sell 2 out of the money Calls(Puts) & buy out of the money Call (Put). Profit certain if done at credit. Any time credit received. Guts Sell in the money Put & Call. Receive large premium. Options have time premium & market in trading range. Box Sell Calls & Puts same strike price. Profit certain if done at credit. Any time credit received. Ratio Call Buy Call & sell Calls of higher strike price. Neutral, slightly bullish. Large credit & difference between strike price of option bought & sold. Conversion Buy futures & buy at the money Put & sell out of the money Call. Profit certain if done at credit. Any time credit received.   Special Market Situations Option Spread Strategy Description Reason to use When to use Straddle Purchase Buy Put & Call. Options will lose time value premium quickly. Options under-valued & market likely to make a big move. Covered Call Buy future & sell Call. Collect premium on Calls sold. Neutral to slightly bullish. Covered Put Sell future & sell Put. Collect premium of Puts sold. Neutral to slightly bearish. Synthetic futures position. Buy Call (Put) & Sell Put (Call). Neutral, slightly trending market. Receive credit, option sold far out of the money.   74 Option Trading Strategies Call backspread Long Put spread or bear spread (volatility down) Short combo Call ratio spread Long semi-futures (volatility up) Short condor Call Long Call albatross Long semi-futures (volatility down) Short condor gut iron Long gut iron albatross Long straddle Short condor iron Long iron albatross Long strangle Short condor Put Long albatross Put Long gut strangle Short fence (volatility up) Long butterflies Call Long Call synthetic Short fence (volatility down) Long butterflies gut iron Long Call semi-futures synthetic (volatility up) Short Call Long butterflies iron Long Call semi-futures synthetic (volatility down) Short Put Long butterflies Put Long Put synthetic Short Put christmas tree Long Call christmas tree Long Put semi-futures synthetic (volatility up) Short Put spread or bull spread (volatility up) Long Call spread or bull spread (volatility up) Long Put semi-futures synthetic (volatility down) Short Put spread or bull spread (volatility down) Long Call spread or bull spread (volatility down) Long underlying Short semi-futures (volatility down) Long combo Put backspread Short semi-futures (volatility up) Long Call condor Put ratio spread Short straddle Long gut iron condor Short Call albatross Short strangle Long iron condor Short gut iron albatross Short gut strangle Long condor Put Short iron albatross Short Call synthetic Long fence (volatility up) Short Put albatross Short Call semi-futures synthetic (volatility up) Long fence (volatility down) Short Call butterflies Short Call semi-futures synthetic (volatility down) Long Call Short gut iron butterflies Short Put semi-futures synthetic (volatility up) Long Put Short iron butterflies Short Put semi-futures synthetic (volatility down) Long Put christmas tree Short Put butterflies Short Put synthetic Long Put spread or bear spread (volatility up) Short Call christmas tree Short underlying Long Put spread or bear spread (volatility down) Short Call spread or bear spread (volatility up)   Long semi-futures (volatility up) Short Call spread or bear spread (volatility down)