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Strategies

Strategies - Equity Options

Options are used both for hedging and for earning income. Strategies are combinations of options based on expectations of future movements of the underlying (spot), and volatilities. Risk, as for all capital markets instruments, always remains but the extent can be managed either through caps or through selling/buying back the option during the option’s life (to expiry).

Strategies can be used to build structured notes as in the costless collar.

In the following, for each of the strategies, the structure, the participant’s view and the maximum/minimum gains are listed. (fees which may or may not be required by the broker are not shown). Expiry dates are the same for all strategies and expressed in years, e.g. 30 days = .082192 years. ATM = At-the-money, OTM=out-of-the-money.

Please click on User Agreement before using any calculators on RiskSnap. User Agreement

Strategy Chart Structure Equity View Volatility View Max Loss Max Gain
1. Bull Call Spread Bull Call Spread Buy a lower strike call and sell a higher strike call. long neutral Net premium paid higher strike less lower strike less net premium paid
2. Bull Put Spread Bull Put Spread Buy a lower strike put and sell a higher strike put long neutral Higher strike less lower strike plus net premium received Net premium received
3. Bear Call Spread Bear Call Spread Sell a lower strike call and buy a higher strike call short neutral Higher strike less lower strike plus net premium received Net premium received
4. Bear Put Spread Bear Put Spread Sell a lower strike put and buy a higher strike put short neutral Net premium paid higher strike less lower strike less net premium paid
5. Long Strangle Long Strangle Buy an OTM call and Buy an OTM put neutral Long Net premium paid Unlimited
6. Short Strangle Short Strangle Sell an OTM call and sell an OTM put neutral Short Unlimited Net premium received
7. Long Straddle Long Straddle Buy a call and buy a put at same strikes neutral Long Net premium paid Unlimited
8. Short Straddle Short Straddle Sell a call and sell a put at same strikes neutral short Unlimited Net premium received less difference between put strike and call strike if not exactly same.
9. Negative Risk Reversal Negative Risk Reversal Sell OTM call and buy OTM put short neutral Unlimited Put strike less net premium paid
10. Positive Risk Reversal Positive Risk Reversal Buy OTM call and sell OTM Put long neutral Put strike less net premium received Unlimited
11. Long Call Butterfly Spread Long Call Butterfly Spread Buy one ITM call, sell 2 ATM Calls, buy one OTM Call; strikes equidistant neutral Short Net premium paid ATM strike less lower strike less net premium paid
12. Short Call Butterfly Spread Short Call Butterfly Spread Sell one ITM call, buy 2 ATM Calls, sell one OTM Call; strikes equidistant neutral long ATM strike less OTM strike less net premium received Net premium received
13. Long Put Butterfly Spread Long Put Butterfly Spread Buy one OTM Put, sell 2 ATM Puts, buy one ITM Put; strikes equidistant neutral short Net premium paid ITM strike less 1 ATM strike less net premium paid
14. Short Put Butterfly Spread Short Put Butterfly Spread Sell one OTM put, buy 2 ATM Puts, sell one ITM Put; strikes equidistant neutral long 1 ATM strike less ITM strike less net premium received Net premium received
15. Short Iron Condor Short Iron Condor Buy one OTM Put, Sell one ATM put, Sell one OTM Call, Buy one OTM Call further above; strikes equidistant apart neutral short Lower put strike less higher put strike, or, lower call strike less higher call strike; less net premium received Net premium received
16. Long Iron Condor Long Iron Condor Sell one OTM Put, Buy one ATM put, Buy one OTM Call, Sell one OTM Call further above; strikes equidistant apart neutral long Net premium paid Higher put strike less lower put strike, or, higher call strike less lower call strike; less net premium paid
17. Bullish Seagull Bullish Seagull Buy a lower strike call and sell a higher strike call, Sell one OTM Put, zero premium long neutral Put strike Higher call strike less lower call strike
18. Bearish Seagull Bearish Seagull Sell a lower strike put and buy a higher strike put, , Sell one OTM Call, zero premium short neutral Unlimited Higher put strike less lower put strike

Strategies - Calculators

Calculators for the above strategies follow. These use delta-based strike selection, separate volatility inputs for each leg, and the RiskSnap pricing engine.

1. Bull Call Spread Calculator

Buy a lower strike call and sell a higher strike call. This is a debit spread.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Buy Lower Call1Call
Sell Higher Call-1Call

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

2. Bull Put Spread Calculator

Sell a higher strike put and buy a lower strike put. This is a credit spread.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Buy Lower Put1Put
Sell Higher Put-1Put

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

3. Bear Call Spread Calculator

Sell a lower strike call and buy a higher strike call. This is a credit spread.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Sell Lower Call-1Call
Buy Higher Call1Call

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

4. Bear Put Spread Calculator

Buy a higher strike put and sell a lower strike put. This is a debit spread.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Sell Lower Put-1Put
Buy Higher Put1Put

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

5. Long Strangle Calculator

Buy an out-of-the-money put and an out-of-the-money call.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Buy OTM Put1Put
Buy OTM Call1Call

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

6. Short Strangle Calculator

Sell an out-of-the-money put and an out-of-the-money call.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Sell OTM Put-1Put
Sell OTM Call-1Call

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

7. Long Straddle Calculator

Buy an at-the-money call and an at-the-money put.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Buy ATM Call1Call
Buy ATM Put1Put

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

8. Short Straddle Calculator

Sell an at-the-money call and an at-the-money put.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Sell ATM Call-1Call
Sell ATM Put-1Put

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

9. Negative Risk Reversal Calculator

Sell an out-of-the-money call and buy an out-of-the-money put.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Buy OTM Put1Put
Sell OTM Call-1Call

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

10. Positive Risk Reversal Calculator

Buy an out-of-the-money call and sell an out-of-the-money put.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Sell OTM Put-1Put
Buy OTM Call1Call

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

11. Long Call Butterfly Spread Calculator

Buy one lower strike call, sell two middle calls, buy one higher strike call.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Buy Lower Call1Call
Sell 2 Middle Calls-2Call
Buy Higher Call1Call

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

12. Short Call Butterfly Spread Calculator

Sell one lower strike call, buy two middle calls, sell one higher strike call.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Sell Lower Call-1Call
Buy 2 Middle Calls2Call
Sell Higher Call-1Call

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

13. Long Put Butterfly Spread Calculator

Buy one lower strike put, sell two middle puts, buy one higher strike put.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Buy Lower Put1Put
Sell 2 Middle Puts-2Put
Buy Higher Put1Put

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

14. Short Put Butterfly Spread Calculator

Sell one lower strike put, buy two middle puts, sell one higher strike put.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Sell Lower Put-1Put
Buy 2 Middle Puts2Put
Sell Higher Put-1Put

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

15. Short Iron Condor Calculator

Buy a far OTM put, sell a nearer OTM put, sell a nearer OTM call, buy a farther OTM call.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Buy Far OTM Put1Put
Sell OTM Put-1Put
Sell OTM Call-1Call
Buy Far OTM Call1Call

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

16. Long Iron Condor Calculator

Sell a far OTM put, buy a nearer OTM put, buy a nearer OTM call, sell a farther OTM call.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Sell Far OTM Put-1Put
Buy OTM Put1Put
Buy OTM Call1Call
Sell Far OTM Call-1Call

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

17. Bullish Seagull Calculator

Buy a lower strike call, sell a higher strike call, and sell an OTM put.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Sell OTM Put-1Put
Buy Lower Call1Call
Sell Higher Call-1Call

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.

18. Bearish Seagull Calculator

Sell a lower strike put, buy a higher strike put, and sell an OTM call.

Bull Call Spread
LegQtyTypeTarget DeltaVolatilityStrikePriceActual DeltaCash PremiumPayoff at Spot
Sell Lower Put-1Put
Buy Higher Put1Put
Sell OTM Call-1Call

Inputs use decimals. Example: 20% volatility is 0.20. Put deltas should be negative, e.g. -0.25. Each leg has its own volatility input.