Option Strategies

Question 1

Long Call

Answer 1

Buy 1 call option at strike price. Implementation: When expecting a significant rise in the stock price.

Question 2

Short Call

Answer 2

Sell 1 call option at strike price. Implementation: When expecting a stable or slightly falling stock price.

Question 3

Long Put

Answer 3

Buy 1 put option at strike price. Implementation: When expecting a significant fall in the stock price.

Question 4

Short Put

Answer 4

Sell 1 put option at strike price. Implementation: When expecting a stable or slightly rising stock price.

Question 5

Protective Put

Answer 5

Buy stock and buy 1 put option at strike price. Implementation: To protect against downside risk while holding stock.

Question 6

Covered Call

Answer 6

Buy stock and sell 1 call option at strike price. Implementation: To generate income from stock ownership with limited upside.

Question 7

Bull Call Spread

Answer 7

Buy 1 call option at lower strike and sell 1 call option at higher strike. Implementation: When expecting a moderate rise in the stock price.

Question 8

Short Bull Call Spread

Answer 8

Sell 1 call option at lower strike and buy 1 call option at higher strike. Implementation: When expecting a stable or slightly falling stock price.

Question 9

Bear Put Spread

Answer 9

Buy 1 put option at higher strike and sell 1 put option at lower strike. Implementation: When expecting a moderate fall in the stock price.

Question 10

Short Bear Put Spread

Answer 10

Sell 1 put option at higher strike and buy 1 put option at lower strike. Implementation: When expecting a stable or slightly rising stock price.

Question 11

Straddle

Answer 11

Buy 1 call and 1 put option at the same strike price. Implementation: When expecting high volatility but unsure of direction.

Question 12

Short Straddle

Answer 12

Sell 1 call and 1 put option at the same strike price. Implementation: When expecting low volatility in the stock price.

Question 13

Strangle

Answer 13

Buy 1 call and 1 put option at different strike prices. Implementation: When expecting high volatility but unsure of direction.

Question 14

Short Strangle

Answer 14

Sell 1 call and 1 put option at different strike prices. Implementation: When expecting low volatility in the stock price.

Question 15

Long Condor (Calls)

Answer 15

Buy 1 call at lowest strike, sell 2 calls at middle strikes, buy 1 call at highest strike. Implementation: When expecting very low volatility within a narrow range.

Question 16

Short Condor (Calls)

Answer 16

Sell 1 call at lowest strike, buy 2 calls at middle strikes, sell 1 call at highest strike. Implementation: When expecting high volatility beyond the middle strikes.

Question 17

Long Butterfly Spread

Answer 17

Buy 1 option at lowest strike, sell 2 options at middle strike, buy 1 option at highest strike. Implementation: When expecting low volatility near the middle strike price.

Question 18

Short Butterfly Spread

Answer 18

Sell 1 option at lowest strike, buy 2 options at middle strike, sell 1 option at highest strike. Implementation: When expecting high volatility away from the middle strike price.