Core strategies
Options trading explanation
Basic options trading strategies
In this part, we are looking at the core options trading strategies.
If you are new to options the used nomenclature may seem strange if not bizarre (Condor, Butterfly, Straddle, etc.) – do not be confused as each strategy simply represents a specific risk and reward structure (the name is only for convenience when discussing).
In learning these strategies, the primary objective is to understand how risk and reward are reflected in the structure with movements in the underlying stock, changes in volatility and the passage of time – as your skill improves, you will begin to intuitively think in these terms and as your knowledge progresses, you will be able to fluidly make structure adjustment decisions in real-time and under extreme stress.
If you are new to options the used nomenclature may seem strange if not bizarre (Condor, Butterfly, Straddle, etc.) – do not be confused as each strategy simply represents a specific risk and reward structure (the name is only for convenience when discussing).
In learning these strategies, the primary objective is to understand how risk and reward are reflected in the structure with movements in the underlying stock, changes in volatility and the passage of time – as your skill improves, you will begin to intuitively think in these terms and as your knowledge progresses, you will be able to fluidly make structure adjustment decisions in real-time and under extreme stress.
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Call Spread
Call Butterfly
Put Spread
Put Butterfly
Straddle
Iron Butterfly
Risk Reversal
Strangle
Iron Condor
Each Core Strategy is presented using a consistent framework throughout the Guide. In order to be as clear and concise as possible, the content describes each Core Strategy into three categories: Structure, Rationale, and Risk/Reward.
Structure describes how the Core Strategy is constructed using either Puts, Calls (or both) and uses example trades with real data (Bid, Ask, Series, Strikes, etc.) from the option chains (see Trade Example Data Set below).
Rationale simply explains the general purpose of the strategy and under what circumstances it is used and highlights practical, real-life trading issues when relevant. Finally, Risk/Reward details a sample trade and how both Risk and Reward would be determined.
Use our option strategies calculator, and find out profit/loss.
Download LAVA mobile app and test your strategy
Use QR code below.
Call Butterfly
Put Spread
Put Butterfly
Straddle
Iron Butterfly
Risk Reversal
Strangle
Iron Condor
Each Core Strategy is presented using a consistent framework throughout the Guide. In order to be as clear and concise as possible, the content describes each Core Strategy into three categories: Structure, Rationale, and Risk/Reward.
Structure describes how the Core Strategy is constructed using either Puts, Calls (or both) and uses example trades with real data (Bid, Ask, Series, Strikes, etc.) from the option chains (see Trade Example Data Set below).
Rationale simply explains the general purpose of the strategy and under what circumstances it is used and highlights practical, real-life trading issues when relevant. Finally, Risk/Reward details a sample trade and how both Risk and Reward would be determined.
Use our option strategies calculator, and find out profit/loss.
Download LAVA mobile app and test your strategy
Use QR code below.
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All investments involve risk, including the possible loss of capital. You may not get back what you have originally invested. The material provided herein is general in nature and does not take into account your objectives, financial situation or needs. This is not an offer, solicitation of an offer, or advice to buy or sell securities.
All investments involve risk, including the possible loss of capital. You may not get back what you have originally invested. The material provided herein is general in nature and does not take into account your objectives, financial situation or needs. This is not an offer, solicitation of an offer, or advice to buy or sell securities.