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An option strategy refers to purchasing and/or selling a combination of options and the underlying assets in order to achieve a desired payoff. Option strategies can be created to favor different market conditions such as, bullish, bearish or neutral. The options positions consist of long/short put/call option contracts.

Depending on the need and market forecast, different strategies can be implemented.

Bullish strategies are implemented when the market outlook is bullish. Similarly bearish/neutral strategies are implemented when the market outlook is bearish/neutral. The most commonly used strategies are listed below:

**Covered Strategies**

Covered strategies involve taking a position in the option and the underlying.

**Covered Call:**This strategy involved being long the underlying stock and short a call option on the same stock.

**Covered Put:**This involves selling a put option and being short an equivalent amount of the underlying stock.

**Protective Put:**A protective put involves buying an underlying stock and at the same time buying a put option on the same stock.

**Spread Strategies**

Spread strategies involve taking a position in two or more options of the same type (A spread)

**Bull Spread:**Bull spread strategy can be created with both call and put options.A bull call spread involves buying a call option with a low exercise price, and selling another call option with a higher exercise price.

Both calls will have the same underlying security and expiration month.

**Bear Spread:**A bear call spread involves buying call options of a certain strike price and selling the same number of call options of lower strike price (in the money).Both calls will have the same underlying security and expiration month.

**Box Spread:**A box spread is created by a combination of a bull call spread and a bear put spread with identical expiry dates.This strategy provides minimum risk.

**Butterfly Spread:**A butterfly spread is created by using 4 option positions.A long butterfly spread is implemented as follows:

- Long 1 call a high strike price
- Short 2 calls at an intermediate strike price
- Long 1 call at a low strike price

The strikes are equidistant.

**Calendar Spread:**A calendar spread involves simultaneous purchase of a call option expiring in a particular month and the sale of the identical option expiring in another month.

**Combination Strategies**

Take a position in a mixture of calls & puts (A combination)

**Straddle:**A long straddle involves buying one call and one put option at the same strike.Similarly a short straddle involves selling one call and one put option at the same strike.

**Strip and Strap:**A strip involves combining one long call with two long puts.## Top 3 Options Trading Strategies for Beginners

A strap involves combining two long calls with one long put.

**Strangle:**A long strangle involves buying one call option and buying one put option at a lower strike. Similarly a short strangle involves selling one call option and one put option at a lower strike.

### Option Strategies Spreadsheet

**Download the Option Trading Strategies Spreadsheet** – This spreadsheet helps you create any option strategy and view its profit and loss, and payoff diagram.