Option Strategies

Gamma scalp using straddles - A straddle position consists of a long at-the-money call and a long at-the-money put. This is a negative theta, positive vega trade. Negative theta means every day that the stock doesn't move you lose money. The trade is generally set up delta neutral, and as the price moves up and down, you sell part of the position (sell calls as the price moves up and sell puts as the price moves down) to keep the delta as close to zero as possible. This is a high risk, capital intensive trade that needs a lot of price movement in order to be profitable.

Iron Condor -

Construct by selling a put credit spread below the money and a call credit spread above the money. The 2 spreads should be the same width.

Short Iron Condor with Embedded Long Straddle -

Short Strangle -

Iron Butterfly with Long Call -

Calendar

Ratio Broken Wing Butterfly

This Strategy can be used with both calls for a bearish position or with puts for a bullish position. This is a directional position that can only lose money in one direction. Using RUT, use 10 point strikes. On put side. use 1-3-2 ratio. The short strike is set at ~ 15-20 delta. Sell 3 puts at the short strike, buy 2 puts 10 points below the short, buy 1 put 10 points above the short strike. Eg: long 1 put at 770, short 3 puts at 760, long 2 puts at 750. Start with the short delta ~ 15-20. Start 30-40 days before expiration Adjust when the price gets to 10 points ahead of closest strike (long). Adjustment is to turn it into a regular butterfly by buying a debit spread. In this case, buy 1 770 put, sell 1 760 put. This trade can use any 1-3-2 ratio. eg: 2-6-4. On call side (bearish position) about 30-40 days before expiration, +4 -6 +2 ratio. sell 6 calls at about a 15-20 delta. buy 4 calls 10 points above short strike, buy 2 calls 10 points below short strike. adjust when within 10 points of the short strike or down ~ 6%. adjust by turning it into a standard butterfly by buying a debit spread. ie: buy 1 more call 10 points below the short strike, sell 1 call 10 points above the short strike. profit target ~ 10%, max loss ~12%. ex: RUT at 813, sell 6 860 calls, buy 4 870 calls, buy 2 850 calls. Adjustment - buy 1 850 call, sell 1 870 call.

Condor with embedded debit spreads -

Synthetic Covered Call -

Synthetic Covered Call - This trade consists of a long deep-in-the-money back month call and a front month at-the-money or out-of-the-money short call. The back month can be anywhere from 3 to 12 or more months in the future. The front month short call can be continually rolled to a later month to keep collecting premium against the long call. The long call should be selected with a delta of 80-90.

Example: With IBM at 186, purchase 1 long April IBM 160 call and sell 1 December 190 call.

Call Debit Spread -This trade consists of a long call plus a short call at a higher price. Both calls are placed in the same expiration month. This is a bullish position, betting on a price rise. This trade will be positive or negative theta depending on where the current price is in relation to the break even point. Once above the break even price, this will have positive theta. The trade will have positive or negative vega depending on the current price relative to the break even price. Click here to view the vega graph. This trade is entered for a debit.

Example: XLF at 12.00. Buy a November 12 call and sell a November 14 call.

Put Debit Spread -

Risk Reversal -