BULLISH PLAYS
LIMITED RISK
Long call
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Easy to execute and manage
The delta of a call tells you your exposure to changes in the stock
The delta of a call will change with stock price movement and the passage of time
Don't forget about time decay (negative theta)
Keep in mind that volatility of the underlying and fluctuations in implied volatility (supply and
demand for premium) affect option prices
Call Back Spread
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Long more higher strike calls and short lower strike call at same expiration
Like a long call, it has unlimited upside profit potential with limited risk
At expiration, the stock needs to be significantly above the long strike to make money
This position has net long options, and is usually long volatility (vega)
Be aware that a backspread can be initiated for a debit (pay for it) or credit (receive money for it)
The potential liability is the difference between the strikes
Bull Vertical (long call vertical or short put vertical)
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Long lower strike call (put) and short higher strike call (put) at same expiration
The bigger the difference between the strikes, the bigger the potential profit, but also the bigger
the cost
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Your maximum loss and profit are limited
Generally speaking, it's an inexpensive way to play the upside in a stock or index
It's a good introduction to option spreading, but also a favorite among veterans
Long Higher Strike Butterfly
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Relatively inexpensive option strategy that has limited risk and limited profit potential
The closer a butterfly is to expiration, the more it will react to changes in the stock price
A strategy used by professional traders for years because of its protective characteristics
For a long butterfly, you want the stock to rise to the middle strike
Long Higher Strike Time Spread
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Long back month option and short front month option at the same strike
Time spreads have limited risk and limited profit potential
Relatively low cost position with no margin required
Be aware that implied volatility can change at different rates in each month
This spread works best if the stock moves up to the strike price slowly, allowing the premium of
the short call to erode at a quicker rate.
UNLIMITED RISK
Long
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Stock
Buy and hold -- it's a time tested strategy
Not as much leverage or protection as certain option positions
Isolate your speculation - and you may find an option position that has more desirable risk
characteristics
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Hold it forever, and you'll get any dividends payable
Long Combo
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“Synthetically” long stock
Long call and short put at same strike and expiration
Has the same risk exposure as long stock, and dividends and cost of carry are built into the
combo price
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Unlike stock, combos expire, and unless it is exactly at the money, long stock will be the result of
the call exercise or the put assignment.
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In most cases, requires less margin than long stock
Long Semi-Stock (off-strike combo)
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Similar to long combo, but has smaller positive delta
Long higher strike call and short lower strike put at same expiration
The position is generally initiated as premium-neutral but that can change quickly as the stock
price moves
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Requires less margin than either long stock or same-strike combo
Short Put
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Potential profit is limited to the price of the put
Risk is limited to the strike price minus the price of the put
Generally requires less margin than buying stock
Can be a good way to get long a stock you want to buy at a lower price (no guarantee that it will
be assigned)
Put Ratio Spread for Credit
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Long higher strike put and short more lower strike puts at same expiration
The most common ratio between short and long is 2:1
Ratio spreads have unlimited downside risk – monitor your position carefully
At expiration, greatest profit at the lower strike price
Because the position is net short options, there is an increased volatility risk