A vertical spread strategy is to simultaneously buy and sell two options of the same underlying stock, same type (calls or puts), and same expiration date, but with different strike prices.
A vertical spread strategy is mainly used to serve the following two purposes:
1. For debit spreads, it is used to reduce the payable net premium.
2. For credit spreads, it is used to lower the risks of short selling option positions.
|
Type |
Definition |
Strike Price Comparison |
Debit/Credit |
Max Profit |
Max Loss |
Breakeven |
|
Long Call Spread (Bull Market) |
Long Call （C1)+Short call (C2) |
C2>C1 |
Debit |
C2 - C1 -Net Debit Paid |
Net Debit Paid |
C1 + Net Debit Paid |
|
Short Call Spread (Bear Market) |
Long Call （C1)+Short Call (C2) |
C1>C2 |
Credit |
Net Credit Received |
C1 - C2 - Net Credit Received |
C2 + Net Credit Received |
|
Short Put Spread (Bull Market) |
Long Put （P1）+Short Put （P2) |
P2>P1 |
Credit |
Net Credit Received |
P2 - P1 - Net Credit Received |
P2 - Net Credit Received |
|
Long Put Spread (Bear Market) |
Long Put （P1）+Short Put （P2) |
P1>P2 |
Debit |
P1 - P2 -Net Debit Paid |
Net Debit Paid |
P1 - Net Debit Paid |
A straddle strategy is to simultaneously hold a call option and a put option of the same underlying stock, same strike price, and same expiration date.
A straddle strategy aims to profit from volatility. You can use a long straddle strategy to profit when you predict large swings (sharp rises or falls) in the underlying stock. Conversely, you can use a short straddle strategy to profit when you expect the underlying stock to remain unchanged or moderately volatile.
A strangle strategy is to simultaneously hold a call option and a put option of the same underlying stock and same expiration date, but with different strike prices.
A strangle strategy aims to profit from volatility. You can use a long strangle strategy to profit when you predict large swings (sharp rises or falls) in the underlying stock. Conversely, you can use a short strangle strategy to profit when you expect the underlying stock to remain unchanged or moderately volatile.
A butterfly strategy is to simultaneously hold three call/put options of the same underlying stock, same expiration date, and same strike distance, with a ratio of 1:2:1.
When you are neutral on a stock, you may profit from a long butterfly strategy. Conversely, if you expect huge swings in a stock, you can use a short butterfly strategy to make a profit.
A condor strategy is to simultaneously hold four call/put options of the same underlying stock, same expiration date, and same strike distance, with a ratio of 1：1：1：1.
A condor strategy aims to make a profit by predicting price volatility. When you are neutral on a stock, you may profit from a long condor strategy. Conversely, if you expect huge swings in a stock, you can use a short condor strategy to make a profit.
An iron butterfly strategy is to simultaneously hold two call options and two put options of the same underlying stock, same expiration date, and same strike distance, with a ratio of 1:1:1:1.
A condor strategy aims to make a profit by predicting price volatility. When you are neutral on a stock, you may profit from a short iron butterfly strategy. Conversely, if you expect huge swings in a stock, you can use a long iron butterfly strategy to make a profit.
An iron condor strategy is to simultaneously hold two call options and two put options of the same underlying stock, same expiration date, and same strike distance, with a ratio of 1:1:1:1.
An iron condor strategy aims to make a profit by predicting price volatility. When you are neutral on a stock, you may profit from a short iron condor strategy. Conversely, if you expect huge swings in a stock, you can use a long iron condor strategy to make a profit.