Option Strategies are calculated ways of using options singly or in combination in order to profit from one or more market movements.
Yes, options can be used to construct Positions that can benefit from an UP, DOWN or even NEUTRAL move in the underlying instrument.
There are even ways to construct positions which benefits from more than one direction of movement. Yes, there are ways to construct positions
which profit from both an UP and DOWN movement or even an UP and NEUTRAL movement just to name a few. These different option positions are
collectively known as Option Strategies.
Broadly, Option Strategies are classified under 4 categories : Bullish Strategies, Bearish Strategies, Bull/Bear Strategies and Neutral Strategies.
Bullish Strategies are option positions that are construct to profit from a rise in the underlying instrument while at the same time offering
a certain degree of downside protection.
Here is a list of basic Bullish Option Strategies:
Bearish Strategies are option positions that are constructed to profit from a drop in the underlying instrument while at the same time offering
a certain degree of upside protection.
Here is a list of basic Bearish Option Strategies:
Bull/Bear Strategies are option positions that are constructed to profit when the underlying instrument moves either Up or Down. This kind of strategy
is especially useful when the underlying instrument is expected to move strongly but is uncertain in which direction. An example of such a
circumstance is when a company is pending an important approval on its new and important product line. The approval of which is certain to move
its stock price up greatly but a disapproval could almost break the company down.
Here is a list of basic Bull/Bear Option Strategies:
"Spreads" is the term used to describe an option strategy that consist of going long (Buy to Open) one kind of option and simultaneously going short
(Sell to Open) another option of a different strike price or expiration date on the same underlying instrument.
Spreads confer on the option position some degree of protection when the underlying stock do not move as predicted or allow the position to profit
from the premium of the short options as in many of the Neutral Strategies.
Spreads can be broadly classifed as Debit Spreads or Credit Spreads.
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