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If you’re new to the stock market or investing, terms like Option Strategies or Option Trading Strategies might seem complicated but don’t worry, we’ll explain everything..
Option is a contract that gives an investor the right but not the obligation to buy or sell an underlying asset, such as a stock or index, at a fixed price within a set time period, in exchange for a premium.
In this blog, we’ll cover some of the best Option Trading Strategies every trader and investor should know. Each strategy has its own risks and benefits, so understanding how they work is important to make smarter trading decisions.
Let’s look at the top 10 most popular options trading strategies to help you trade with confidence.
Best Option Trading Strategies That Every Trader Should Know
Here are the top 10 Option Trading Strategies you can explore. Whether you choose to use them or not depends on your trading style, but having a basic understanding of how they work will make you more flexible and better prepared for changing market conditions.
Bullish Option Trading Strategies
Let’s first have a look at the best Bullish Option Trading Strategy
Bull Call Spread is one of the best option trading strategies used when you expect a moderate rise in the stock price. This strategy involves buying a call option that is “in the money” (strike price below the current market price) and selling another call option that is “out of the money” (strike price above the current market price), both with the same expiry date. By doing this, you limit your risk and reduce the net premium paid.
Example: Let’s say a stock is currently trading at ₹1,000.
- You buy a call option with a strike price of ₹1,000 for a premium of ₹60.
- You sell a call option with a strike price of ₹1,050 for a premium of ₹30.
Your net premium paid is ₹30 (₹60 – ₹30).
If the stock closes at or above ₹1,050 on expiry, your maximum profit will be ₹20. calculated as (₹1,050 – ₹1,000) – ₹30 = ₹20.
Your maximum loss is limited to the ₹30 premium you paid initially.
Bear Put Spread is one of the most common option trading strategies used when you expect the stock price to fall moderately. In this strategy, you buy a put option with a higher strike price and sell another put option with a lower strike price, both having the same expiry date.
This setup helps limit your risk and also reduces the overall cost of the trade, as the premium you receive from selling the lower strike put offsets part of the cost of buying the higher strike put.
Example: Suppose a stock is trading at ₹100.
- You buy a ₹100 put option for ₹4.
- You sell a ₹95 put option for ₹2.
Your net cost (premium paid) is ₹2 (₹4 – ₹2).
If the stock price falls below ₹95 at expiry, your maximum profit is ₹3.
Calculated as the difference between strike prices (₹5) minus the premium paid (₹2).
If the stock price stays above ₹100, both options expire worthless and your maximum loss is limited to the ₹2 premium paid.
When you expect the stock price to rise but also want protection if it falls. This strategy involves buying the stock and buying a put option on the same stock at or slightly below the current market price.
Put option acts as insurance, it protects you from large losses if the stock price drops, while still allowing you to benefit if the price goes up. Essentially, it gives you the same risk and reward profile as buying a regular call option.
Example: Suppose a stock is trading at ₹1,000.
- You buy the stock at ₹1,000.
- You buy a ₹1,000 put option for ₹30.
If the stock price rises to ₹1,100, you can sell it and make a profit of ₹100, minus the ₹30 premium you paid for the put so your net profit is ₹70.
If the stock price falls to ₹900, your put option allows you to sell the stock at ₹1,000, limiting your maximum loss to the ₹30 premium.
Long Combo is a bullish option trading strategy, used when you expect the stock price to rise. In this setup, you sell one put option and buy one call option. Both options have the same expiry, but different strike prices usually, both are out of the money (OTM).
This strategy starts making profits when the stock price moves up because your call gains value, while the sold put expires worthless.
Example: If a stock is trading at ₹1,000,
- You sell a ₹950 put for ₹20
- You buy a ₹1,050 call for ₹25.
Your net cost is ₹5 (₹25 – ₹20). If the stock moves above ₹1,050, you start making profits and your potential upside is unlimited, while your loss is limited to ₹5 if the stock falls.
Long Straddle is used when you expect a big price move but you’re not sure in which direction. You buy one call option and one put option on the same stock, with the same strike price and expiry date.
If the price moves sharply in either direction, you can profit the gain from one option will be much higher than the loss on the other.
Example: If a stock is trading at ₹1,000
- You buy a ₹1,000 call for ₹30
- You buy a ₹1,000 put for ₹25.
Your total cost is ₹55. If the stock goes to ₹1,100, your call will gain ₹100 and your put will expire worthless, giving you a profit of ₹45 (₹100 – ₹55). If the stock falls to ₹900, your put gains ₹100, while the call expires worthless, again giving you ₹45 profit.
Long Strangle is similar to a straddle but slightly cheaper. Here, you buy an out of the money (OTM) call and an out-of-the-money (OTM) put of the same stock and expiry date. You expect big price swings but don’t know the direction. Since both options are OTM, the cost is lower but you’ll need a bigger price move to make profits.
Example: If a stock trades at ₹1,000
- You buy a ₹1,050 call for ₹15
- You buy a ₹950 put for ₹10.
Your total cost is ₹25. If the stock jumps above ₹1,075 or drops below ₹925, you start making profits.
Long Call Butterfly is a low-risk, range-bound strategy. It’s best used when you expect the stock to stay within a narrow price range.
In this setup, you buy one call at a lower strike, sell two calls at a middle strike and buy one call at a higher strike all with the same expiry.
Your profit is limited and occurs if the stock stays near the middle strike price at expiry. Losses are also limited.
Example: If a stock trades at ₹1,000,
- Buy 1 call at ₹950 for ₹60,
- Sell 2 calls at ₹1,000 for ₹40 each (₹80 total),
- Buy 1 call at ₹1,050 for ₹20.
Your net cost is ₹0 (₹80 – ₹80). You’ll make a profit if the stock stays around ₹1,000 at expiry and your maximum loss is minimal.
Covered Call is a simple and best options trading strategy used when you already own a stock and expect its price to stay stable or rise slightly. In this strategy, you hold the stock and sell a call option on the same stock to earn extra income from the premium.
Example: Suppose you own 100 shares of XYZ, currently trading at ₹1,000 per share. You sell one call option with a strike price of ₹1,050 for a premium of ₹20 per share.
- If the stock stays below ₹1,050 by expiry, you keep your shares and the ₹2,000 premium (₹20 × 100).
- If the stock rises above ₹1,050, you’ll have to sell your shares at ₹1,050, limiting your profit but you still keep the ₹2,000 premium.
In short, a Covered Call strategy helps you earn steady income from premiums while slightly capping your upside potential. It’s best used when you expect the stock to remain neutral or moderately bullish.
Iron Condor is a best options trading strategy used when you expect the stock to stay within a certain price range. It helps you earn a steady income from premiums while keeping your risk limited.
This strategy involves selling one out-of-the-money (OTM) call and one OTM put and at the same time buying another call and put that are further out of the money to protect yourself from big losses.
Example: Let’s say a stock is trading at ₹500.
- You sell a ₹520 call and a ₹480 put (to collect premium).
- You buy a ₹530 call and a ₹470 put (to limit your risk).
If the stock stays between ₹480 and ₹520 by expiry, all options expire worthless and you keep the net premium as profit. If the stock moves sharply beyond ₹470 or ₹530, your losses are capped because of the options you bought.
Bearish Option Trading Strategies
Here are the best Bearish Option Trading Strategies:
Bear Call Spread is the opposite of Bull Call Spread. It’s used when you expect the market to stay flat or move slightly down. In this strategy, you sell an in-the-money (ITM) call and buy an out-of-the-money (OTM) call with the same expiry. The call you buy protects you from big losses if the price rises unexpectedly.
Example: If a stock trades at ₹1,000
- Sell a ₹950 call for ₹70
- Buy a ₹1,050 call for ₹20
You receive ₹50 upfront (₹70 – ₹20). If the stock stays below ₹950, both calls expire worthless and you keep the ₹50 premium. Your maximum loss is limited to the difference in strike prices minus the premium received (₹1,050 – ₹950) – ₹50 = ₹0 (break-even).
Bear Put Spread is used when you expect the stock to fall moderately. You buy one higher strike (ITM) put and sell one lower strike (OTM) put with the same expiry. The sold put helps reduce your total cost.
Example: If a stock trades at ₹100
- Buy a ₹100 put for ₹5
- Sell a ₹90 put for ₹2
Your net cost = ₹3. If the stock drops below ₹90, you make a maximum profit of ₹7 (difference in strikes ₹10 – ₹3 cost). If the stock stays above ₹100, your maximum loss is the ₹3 you paid.
Protective Call, also called a Synthetic Long Put, is used to protect a short stock position from rising prices. You sell the stock and buy a call option on the same stock. The call acts like insurance in case the price goes up.
Example: If you short a stock at ₹1,000 and buy a ₹1,000 call for ₹30,
- If the stock drops to ₹900, you gain ₹100 on your short, minus ₹30 = ₹70 profit.
- If the stock rises to ₹1,100, your call protects you, you can buy it back at ₹1,000, limiting your loss to ₹30.
Covered Put is the opposite of a Covered Call. It’s used when you expect prices to stay stable or move slightly upward. Here, you sell a put option while holding a short position in the stock.
Example: If a stock trades at ₹1,000
- You short-sell the stock at ₹1,000.
- You sell a ₹950 put for ₹20.
If the stock stays above ₹950, you keep the ₹20 premium as profit. If the stock rises, your short position loses, but the sold put premium helps reduce that loss.
Short Straddle is used when you expect the market to stay flat. You sell one call and one put at the same strike price and expiry date.
Example: If a stock trades at ₹1,000
- Sell a ₹1,000 call for ₹30
- Sell a ₹1,000 put for ₹25
You receive ₹55 total. If the stock stays near ₹1,000, you keep the full premium. But if the stock moves sharply up or down, losses can be large so this is a risky strategy.
Short Strangle is similar to a short straddle but with less risk and lower reward. You sell one OTM call and one OTM put, both with the same expiry. You profit when the stock stays within a range.
Example: If a stock trades at ₹1,000
- Sell a ₹1,050 call for ₹20
- Sell a ₹950 put for ₹15
You receive ₹35. If the stock stays between ₹950 and ₹1,050, you keep the ₹35 premium. But large price swings in either direction can cause losses.
Short Call Butterfly is the opposite of a Long Call Butterfly. It’s used when you expect high volatility meaning large price movements.
You buy two at-the-money (ATM) calls, sell one in-the-money (ITM) call and sell one out-of-the-money (OTM) call.
Example: If a stock trades at ₹1,000
- Buy two ₹1,000 calls
- Sell one ₹950 call and one ₹1,050 call
If the stock moves sharply up or down, you profit. If it stays near ₹1,000, you lose the net premium.
Long Put Condor is similar to a Long Butterfly but offers a wider profit range. You buy one ITM put, sell two middle puts (with different strikes) and buy one OTM put all with the same expiry.
Example: If a stock trades at ₹1,000
- Buy ₹1,050 put,
- Sell ₹1,000 put and ₹950 put,
- Buy ₹900 put.
You make the most profit if the stock price stays between ₹950 and ₹1,000 at expiry. Losses and profits are both limited.
Short Put Condor is the opposite of the Long Put Condor. It’s used when you expect big market movements. Here, you sell one ITM put, buy two middle puts (with different strikes) and sell one OTM put.
Example: If a stock trades at ₹1,000
- Sell ₹1,050 put,
- Buy ₹1,000 put and ₹950 put,
- Sell ₹900 put.
If the stock moves sharply up or down, you profit. If it stays in the middle range, you incur a small loss.
Final Words
We’ve covered the top option trading strategies that can help you trade smartly in different market conditions. While options are often seen as risky, using low-risk option strategies can protect your capital and improve your returns.
Even cautious traders can benefit from options by balancing risk and reward effectively. The key is to understand each strategy and know when to apply it.
Mastering options trading strategies gives you the flexibility to trade in bullish, bearish, or neutral markets. Combine the right strategy with a reliable trading platform and proper risk management and you’ll be well-equipped to trade with clarity and confidence.
FAQs On Best Option Trading Strategies
What’s the biggest mistake new option traders make?
New traders often pick strategies that don’t match their market outlook. Choosing a bullish setup in a sideways market increases losses. Always align strategy with market direction.
Can option strategies be applied in any market condition?
Yes. Different option trading strategies suit bullish, bearish, or neutral markets. The key is matching your approach to your market view, time horizon and risk tolerance.
How important is choosing the right expiration date?
Very important. Options lose value as expiry nears. Pick an expiration that aligns with when you expect price movement; too short or too long can hurt profits.
What is the role of volatility in options trading?
Volatility affects option premiums and returns. Ignoring it can lead to wrong trades. Always check implied volatility to choose the right strategy and manage risk.
How do I manage risk when using multi-leg option strategies?
Multi-leg strategies limit both profit and loss. Know your break-even points, position size and risk exposure and keep monitoring trades to protect capital effectively.
Happy investing and thank you for reading!
Disclaimer:
This website content is only for educational purposes, not investment advice. Before making any investment, it’s important to do your own research and be fully informed. Investing in the stock market includes risks, and you should carefully read the Risk Disclosure documents before proceeding. Please remember that past performance doesn’t guarantee future results, and due to market fluctuations, your investment goals may not always be achieved.
