Option Strategies Overview

In addition to straight calls and puts, below is an overview of the variety of option trading strategies available in the All in One tool, and in the Options tab of the Trade tool and Symbol Hub. Click on the links for descriptions of each type of option order for a deeper explanation:

Strategy Sub-Strategy For use when view of stock is: Financial Characteristics
Max Loss Max Gain Change in value in time**

Straight Calls

Long Bullish Net Premium Paid Unlimited Loss
Short Bearish Unlimited Net Premium Received Gain

Straight Puts

Long Bearish Net Premium Paid Strike - Net Premium Paid Loss
Short Bullish Strike - Net Premium Received Net Premium Received Gain

Vertical Call Spreads

Debit Spreads Bullish Net Premium Paid SHigh-SLow-Net Premium Paid Gain
Credit Spreads Bearish SHigh-SLow-Net Premium Received Net Premium Received Loss

Vertical Put Spreads

Debit Spreads Bearish Net Premium Paid SHigh-SLow- Net Premium Paid Loss
Credit Spreads Bullish SHigh-SLow- Net Premium Received Net Premium Received Gain
Bull Call Ratio Spreads   Slightly Bullish Unlimited ((SHigh-SLow x # Long Contracts) ± Net Debit/Credit Paid/Received Gain‡
Bear Put Ratio Spreads   Slightly Bearish [SLow x (# Short Contracts - # Long Contracts) - Difference in Strikes x Long Contracts] ± Net Debit/Credit Paid/Received Difference in Strikes x Long Contracts ± Net Debit/Credit Paid/Received Gain*
Call Ratio Ratio Spreads   Extremely Bullish (SHigh - SLow x # Short Contracts) ± Net Debt/Credit Paid/Received Unlimited Loss*
Put Ratio Ratio Spreads   Extremely Bearish (SHigh - SLow x # Short Contracts) ± Net Debt/Credit Paid/Received [(SHigh x # Long Contracts) - SLow x # Short Contracts)] ± Net Debt/Credit Paid/Received Loss*

Straddles

Long Bullish or bearish, with rising volatility Net Premium Paid Unlimited Loss
Short Neutral and falling volatility Unlimited Net Premium Received Gain

Strangles

Long Bullish/Bearish and rising volatility Net Premium Paid Unlimited Loss
Short Neutral and falling volatility Unlimited Net Premium Received Gain
Butterflies Long Neutral and low/falling volatility Net Premium Paid (Middle Strike Price - Lowest Strike Price) - Net Premium Paid Loss
Short Bullish/Bearish and high/rising volatility (Middle Strike Price - Lowest Strike Price) - Net Premium Received Net Premium Received Gain
Condors Long Neutral and low/falling volatility Net Premium Paid (Difference between lowest and next lowest strike prices) - Net Premium Paid Loss
Short Bullish/Bearish and high/rising volatility (Difference between lowest and next lowest strike prices) - Net Premium Received Net Premium Received Gain
Iron Butterflies Long Bullish/Bearish and high/rising volatility Net Premium Paid (Middle Strike Price - Lowest Strike Price) - Net Premium Paid Loss
Iron Condors Long Bullish/Bearish and high/rising volatility Net Premium Paid (Difference between lowest and next lowest strike prices) - Net Premium Paid Loss

Collars

  Bearish/ Protective Stock Price - SLow +/- Net Premium* SHigh- Stock Price +/- Net Premium* Variable

Calendar Spreads***

Debit Spreads Moderate Bullish Net Premium Paid Unlimited+ Gain++
Credit Spreads Moderate Bearish Unlimited+ Net Premium Received Loss++
Rollout The strategic and financial characteristics of Rollouts can vary greatly depending on the specifics of the order.

Buy-Write and Unwind

Buy-Write Neutral-to-Bullish Purchase Price of Stock - Premium Received Strike - Purchase Price + Premium Gain++
Unwind N/A N/A N/A N/A

Sell-Write and Unwind

Sell-Write Neutral-to-Bearish Unlimited Short Sale Price + Premium - Strike Gain++
Unwind N/A N/A N/A N/A
Custom The strategic and financial characteristics of Custom orders can vary greatly depending on the specifics of the order.

 

SHigh: High Strike Price in two option strategy

SLow: Low Strike Price in two option strategy

* Collar Max Gain/Loss assumes the collar is put on in conjunction with a long stock position.

** This column describes the effect of time decay on the respective strategy holder's position.

*** The discussion of Calendar Spreads that follows is for the debit spread only.

+ Max. Gain for Debit Spread is unlimited only after the expiration of the short option. Max. Loss for Credit Spread is unlimited when the long calls expire prior to the short calls, in which case, the position would not qualify as a spread.

++ The gain or loss with time for calendar spreads applies only during the period when both options in the spread have not yet expired or been assigned. Once the near-term option has expired or been assigned, the situation will reverse (Gain will change to Loss and vice-versa.) Although not common, calendar spreads may be neutral.

‡ For Ratio Spreads, since you are short 2 contracts vs. 1, time decay will "generally" be in your favor, but technically it depends on if you establish this position for a credit or debit. For Back Spreads, time will "generally" be working against you, but again this depends on whether you establish this position for a credit or debit.

 

Commissions, taxes, and transaction costs are not included in any of these strategy discussions, but can affect final outcome and should be considered. Please contact a tax advisor to discuss the tax implications of these strategies. Many of the strategies described herein require the use of a margin account. With long options, investors may lose 100% of funds invested. In-the-money long puts need to be closed out prior to expiration, since exercising them could create short stock positions.

Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Multiple leg options strategies will involve multiple commissions. Please read the options disclosure document titled "Characteristics and Risks of Standardized Options." Member SIPC