VII.6. Options Trading Strategies.

An exhaustive work on option strategies can be found in the book Sh . Natenberg “Options: Volatility and Valuation. Strategy and methods of option trading”. Undoubtedly – this is the best book on how to profit from options! If you need to do it quickly and to the point, we recommend Pavel Pakhomov’s course “Options for a Million”.

Next, let’s look at brief descriptions of strategies for working with options.

There is a special StratVolat_2.2.1000_upd module for the QUICK x64, download from the link .zip, unpack into a folder with QUICK, then run QUICK.

In the program menu, the Expansion item  Strategy  Create a strategy will appear.

This model contains both standard option strategies, and allows you to create your own strategies, i.e. simulate how combinations of purchased options affect your profit. After modeling the strategy, you actually gain a position with ordinary applications. It is impossible to buy all applications in QUICK at once, but this is in special programs for trading options, for example, in Option-lab. Please note that your task is to buy each option as cheaply as possible, and the price in the glass will run or stand for a very long time. Usually, the run-up between supply and demand can reach several hundred rubles for one option, which is unprofitable. The best situations arise during day trading, when the spread (the difference between the best supply and demand) becomes narrower. You need to do it faster – make a price that is unprofitable for yourself, but buy faster – then your profit is less. In general, this is an activity for the patient, like fishing. It takes practice to understand. If you have a habit, you will learn to do it quickly enough.

To download the strategy, click the Download Template button. Next, in the Base Asset Code field, select RTS. Select the tool, for example, RTS 16.06.2022 (SPBFUT).

Standard strategies include the following types:

Long call;

Short call;

Long put;

Short put;

Bullish Call spread;

Bullish Put spread;

Bearish Call Spread;

Bearish Put spread;

Proportional Call spread;

Prop. Put spread;

Prop. Reverse Call spread;

Purchased straddle;

Sold straddle;

The purchased strangle;

Sold strangle;



Purchased butterfly (call);

Purchased butterfly (put);

Sold Butterfly (call);

Sold butterfly (put);

The purchased condor;

Sold condor.

And we will get acquainted with all of them now below. You can also find a description of option strategies on the website In addition to this standard set, you are free to design your own to suit your situation. Truly magnificent! Long CALL Strategy.

Figure 144. Long Call strategy. This strategy (Fig.144) consists in buying 1 CALL option with the desired strike, the maturity date of which has not yet passed. Figure 144 shows the premium of the option that you pay when you buy it 17960 rubles. You lose it if the underlying asset does not reach a level above 134500 by the time of the option expiration. You get a profit if the price of the underlying asset remains above 134500 rubles. It is clear that buying such an expensive option is irrational. For comparison, we will show the situation for the September CALL option with a strike of 132500 in Fig. 145. The premium of such an option is 9810 rubles, and you will receive a profit if the underlying asset starts to grow in the very near future (the time value of the option will jump) or the underlying asset will be above 142250.

Figure 145. Long call with strike 132500.

Short Call Strategy.

Fig.146. Short call strategy.

Here the strategy is to sell the CALL option. At the same time, your profit will be the premium paid by the buyer of your option in the amount of 8870 rubles. However, if by the time of expiration the price of the underlying asset exceeds 117,500, you will start to receive a loss. The blue line of the chart shows the option price chart at the time of expiration.   We see that the current price (red line) is approaching the blue line due to the temporary decay.

Long Put strategy.

Fig.147. Long Put strategy.

If we believe that the RTS Index will fall in price below the 117500 strike we have chosen, then a Long put would be a good idea – buying a PUT option. Figure 147 shows such a case for a PUT option with an expiration date of 23.06.22. Its premium is 5720 rubles, the red graph (the time value of the option) is approaching the theoretical value (blue graph). You make a profit if the price of the underlying asset falls below 117,500.

Short Put Strategy.

Fig.148. Short put strategy.

A strategy (put sale) designed to receive a fixed premium of the option by the time of expiration, provided that its price is higher than the strike price. The premium of the September PUT option with a strike of 120,000 with an expiration date of 15.09.22 is 2000 rubles.

Bullish Call Spread strategy.

Fig.149. Bullish call spread strategy.

It consists in buying and selling a pair of CALL options with different strikes. Additional options:

Long put A, short call B. long underlying asset;

Long call A, short put B, short underlying asset.

Figure 149 shows the situation when we buy a CALL option with a strike of 112500 (note that its price is 5030 rubles), then sell a CALL option with a strike of 117500 (its price is 2170 rubles) as a result, we get a combination worth 2860 rubles, which will give a profit above the price of the underlying asset of 115350 and has a limit the profit is equal to 2140 rubles (the blue chart has a cut-off price at the top). Less is the premium that we lose if the price of the underlying asset goes against us by expiration, but less is the profit. Just buying a CALL option (Long Call) will give more at the same price of the underlying asset, but it also has a large premium part. Let’s change this strategy to achieve our goal: let’s say we want to get from 5,000 to 10,000 rubles, if the price of the RTS index will vary in the range of 115800 – 123000. The scheme is shown in Fig.150. Let’s buy 4 stakes 112500, sell 5 stakes 117500. The award is 8559 rubles. The chart at the time of expiration creates a narrow window with our goal. If the price moves beyond these limits, then we will suffer a loss. However, if the price reaches the value of 117450, we will get 11240 rubles! Wow.

Fig.150. Bullish call spread, modified by us for a new purpose.

Bullish Put Spread strategy

Figure 151. Bullish put spread strategy.

The strategy is to buy and sell PUT with different strikes.  Additional option:

Long put A, short call B. long underlying asset;

Long call A, short put B, short underlying asset.

For the situation shown in Fig.151, when the price of the underlying asset rises above the price of 114050, you get a profit at the time of expiration or closer to it. From the price of 1150, your profit reaches 950 rubles. The premium is 1550 rubles. And if we want to earn 10 times more? Right. We buy and sell 10 PUT options each. The situation is shown in Fig. 152. The possible profit is 8,600 rubles, but also the premium is 16,400 rubles, i.e. the possible loss is almost twice the expected profit.

Fig.152. Scaling the bullish put spread.

Bearish Call Spread Strategy

The strategy allows you to make money on bearish expectations. You need to sell and buy a CALL with different strikes. Additional method:

Short put A, Long call B, short underlying asset;

Short call A. long put V. long underlying asset. For example, in Fig.153. the expected profit is 2230 rubles, the premium is 2770 rubles. If the RTS index falls below 109,000, we will receive 2,230 rubles by the time of expiration.

Fig.153. Bearish Call spread strategy

Bearish Put Spread Strategy To implement this strategy, we buy and sell PUT options at different construction sites, expecting the price to fall. In the example in Fig. 154, we sell 1 way 112500 at a price of 3290 rubles, buy 1 put 115000 at a price of 4640 rubles, as a result, we spend 1350 rubles, expecting to receive 1150 rubles. Risk ratio:the profit is almost 1:1.

Fig. 154. Bearish Put spread strategy

Proportional call spread strategy.

Figure 155. Proportional call spread.

The strategy is implemented by buying one call option at a lower construction site and selling two call options at a higher strike (see Figure 155). The strategy is designed for a falling market with the probability of a small increase by the time of expiration. This strategy is useful for the case of weekly options, closer to the expiration date (1-2 days before expiration).

Strategy Proportional put spread.

Fig.156. The missile defense strategy. put spread

The strategy is to sell two put on a lower construction site and buy 1 put on a higher strike (Fig.156). The strategy assumes an increase in the price of the underlying asset by the time of expiration or a slight decrease. This strategy is suitable for short weekly options.

Strategy proportional reverse call spread.

Fig.157. Prop. reverse call spread

      The strategy is to sell one boiler at a lower construction site and buy two boilers at a higher strike. As can be seen from the graph in Fig. 157, the strategy is suitable for strong price movements of the underlying asset in both directions, but is not designed for weak price movements.

Strategy Purchased Straddle

Fig.158. Strategy Purchased straddle

A very interesting strategy designed for bidirectional strong price movement. Figure 158 shows that as an option, you can buy one call and buy one put of one strike. The disadvantage of the strategy is a large premium part, which we risk losing if the price does not move.

Strategy Sold Straddle

Fig.159. Strategy Sold straddle

To implement this strategy, you need to sell 1 call and 1 put on one strike. The strategy is focused on weak price movement.

Strategy Purchased Strangle.

Fig.160. Strategy Purchased Strangle

The strategy is to buy one put on a lower construction site and buy one boiler on a higher strike. The strategy is interesting for the lower premium part. We profit from a strong price movement in any direction.

Strategy Sold Strangle.

Fig.161. Strategy Sold Strangle

To implement the strategy, you need to sell one track at a lower deadline and sell 1 stake at a higher construction site. The strategy is suitable for weak price movements in a short time interval (1 week).

The strategy of the Strip.

Fig.162. The Strategy of the Strip

To implement a strip, you need to buy two stakes and sell 1 put on one strike. Regulation of the profit rate is achieved when the price of the underlying asset moves up. If the price moves in the opposite direction, then the strategy will also make a profit, but at a slower rate.

Strip Strategy.

Fig.163. Strip Strategy

To implement the strip, we buy 1 call and sell two puts on one strike. Here we increase the rate of profit growth with a sharp drop in the price of the underlying asset. If there is a price increase, then the strategy will also make a profit, but less.

The Bought Butterfly (call) strategy.

Fig.164. Purchased butterfly (call)

To implement the strategy, we sell two boilers on the central strike, buy one call on the strike below the central one, buy 1 call on the strike above the central one. The strategy is interesting for short time intervals with a small price movement. Due to the strong temporary decay closer to expiration, the butterfly allows you to get a good profit with adequate risk.

Strategy Bought butterfly (put).

Figure 165. The Bought Butterfly (put) strategy

Identical to the butterfly on the stakes, this strategy is obtained by selling two putts on the central strike, with the purchase of a put below the central strike and the purchase of a put with a strike above the central strike.

Strategy Sold Butterfly (call).

Fig.166. The Sold Butterfly (call) strategy

In this strategy, you need to buy 2 stakes on the central strike, selling a call above the central strike and 1 stake below the central strike. The strategy creates a narrow corridor that can lead to a loss and a wide corridor when the price moves in both directions beyond the narrow corridor of the price of the underlying asset.

Strategy Sold Butterfly (put).

Fig.167. The Sold Butterfly (put) strategy

The strategy is identical to the sold butterfly on stakes. It is built by buying two putts on the central strike, selling one put above and below the central strike. 

Strategy Bought Condor.

Fig.168. The Bought Condor strategy

A very popular strategy that allows you to expand the range of the price compared to the butterfly. It is built from 4 options at 4 points, for example, from left to right: buy 1 call at the left point, sell 1 call at the next point, sell another call at the next point and buy 1 call at the right point.

Strategy Sold Condor.

Figure 169. The Sold Condor strategy

In a sense, an inverted condor. Compared to the butterfly, it allows you to cut the edge and reduce losses when the price of the underlying asset hits the peak right. The strategy is also built with 4 options from left to right: sell 1 left call, buy the next call, buy the next call again and sell the right call.

Next, we will consider additional strategies that are used for mixed purposes and may be of significant interest for such situations.

Covered call options

It is assumed to sell call options against a long position on stocks/futures or sell put options against a short position on stocks/futures.

Range forward (risk reverse, combo, range forward, tunnel, collar) The strategy is very widely known and used among hedgers, the cost of hedging can practically be reduced to zero. It consists in buying a put and selling a call option with different strikes, but one execution date. Thus, if we have bought the underlying asset (BA), then by selling the call option, we sort of cut our long with further upward movement and open a hedge down. That is, the hedge will be free if we use the proceeds from the sale of calls to buy exactly the same number of putts. If the price of BA goes down, we are really hedged, but if the price of BA goes up, then we fix our long on BA at the point of the sold strike call. Figure 170 shows how to form such a strategy. By setting the run-up between put and stake strikes, you can narrow the size of the horizontal platform on the chart or increase it.

Fig.170. The kollar strategy.

Horizontal (calendar) spread.

The calendar spread consists of two options with the same strike price but different expiration dates.

Calendar spreads are used to “play an uptrend/downtrend” when a trader believes that a certain asset will rise/fall in price, but do it slowly.

When we buy an option with a long maturity and sell with a short one, this is a bullish strategy, it can be called a bullish calendar spread. In it, the maximum loss will be equal to the difference between the premium paid and the one received (we always pay for such a strategy); When we buy an option with a short maturity and sell with a long one, this is a kind of analogue of a bearish vertical strategy, spaced by dates. The profit will be when the market freezes in place, falls or rises slowly and does not reach the point of sale for the second option. If the first option disappears unexpired, then there will be an unlimited loss on the second long option sold (when entering the money), exactly the same as occurs with the usual sale of an uncovered call option. An example of a calendar spread is shown in Figures 171 and 172. The calculation is made on the website

Fig.171. Calendar spread parameters.

Fig.172. Calendar spread chart.

Diagonal spread.

Diagonal spread is a kind of symbiosis of vertical and horizontal spreads. It consists of two options with different expiration dates and different strike prices (see Figure 173).

The diagonal spread strategy is that, being set up for a short, it is necessary to choose such a strike, at which we predict a market reversal and sell a call option for this strike. This will give a good point of entry into the short today (the delta is positive), limits the risk of loss and opens the way to unlimited short profit if the price goes according to this scenario.

Fig.173. Diagonal spread.

Bullish Call Ladder Strategy. The example of assembling a bullish call ladder in Fig. 174 allows you to count on earning 57775 rubles in expiration at the price of the underlying asset above 122500. The highlight is in the sale of putts, selected in the right proportion. Try to disable the putts from the strategy and get a graph like in Fig. 175 with worse profit indicators.

Fig.174. Bullish call ladder.

Figure 175. The sale of putts in a bullish call ladderis disabled.

GATS strategy.

Figure 176 shows the strangle strategy, and Figure 177 shows the gats. What is the point of gats if the graphs are the same? If the price of the underlying asset at the time of expiration is, for example, 117500, then we lose 12720 rubles – the sum of the values of the put and stake for the strangle, i.e. 100% of the cost.

Fig.176. On the comparison of strangle and gats. This is Strangle. In the case of gats, we lose the same amount, but we spent a large amount on the purchase of gats = 11066 + 9149 = 20215 rubles. Then it turns out that we lose 12720/20215* 100% = 62.9%, but not 100%.

Fig.177. On the comparison of strangle and gats. This is gats.

The strategy of “roll with jam”.

The following strategy can be implemented as shown in Fig.178: for the desired strike, we sell 1 call and buy 1 put on the nearest date and then buy 1 count and sell 1 put on the far expiration date.

Figures 179-182 show the Greeks of this strategy. The first two positions give the sale of futures on the nearest expiration date, and the last two positions give the purchase of futures on the far expiration.

Fig.178. The strategy of a roll with jam.

Fig. 179. Delta roll with jam.

Fig.180. The gamut of the roll with jam.

Fig.181. Dough roll with jam.

Fig.182. Vega roll with jam.

General principles of applying Natenberg strategies:

If options seem undervalued (low market volatility), look for spreads with a positive vega. These can be back spreads or long time spreads. If options seem overvalued (high market volatility), look for spreads with negative vega. These can be proportional vertical or short time spreads.

At first glance, it may seem that in a market where all options are either undervalued or overvalued, the most reasonable thing is to use either long straddles and strangles, or short straddles and strangles. Such strategies allow a trader to take a position with a positive theoretical advantage on both sides of the spread. It is certainly possible to use straddles and strangles when all options are too expensive or too cheap. But although straddles and strangles have a great positive theoretical advantage, these strategies are also the riskiest. This is why a trader is often attracted to back spreads or proportional vertical spreads, even if they involve buying overvalued options or selling undervalued options. An important assumption of most options valuation models is the persistence of volatility throughout the life of the option. It is believed that the volatility indicator introduced into the model best reflects the fluctuations in the price of the underlying instrument during the period of the option’s existence. If all options have the same expiration date, then theoretically it is this volatility that determines the desirability of the spread. However, in real life, a trader can assume that volatility will increase or decrease during a given period. Market volatility also often rises or falls. Since time spreads are particularly sensitive to changes in market volatility, its rise or fall may affect the desirability of time spreads. Let’s add this observation to our spread rules: long time spreads are profitable when market volatility is low, but it is expected to rise; short time spreads are profitable when implied volatility is high, but it is expected to fall.

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