Option Strategies Overview

In addition to straight calls and puts, below is an overview of the variety of option trading available in the Options tab. 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
Strategy	Sub-Strategy	For use when view of stock is:	Max Loss	Max Gain	Change in value in time**
Straight Calls	Long	Bullish	Net Premium Paid	Unlimited	Loss
Straight Calls	Short	Bearish	Unlimited	Net Premium Received	Gain
Straight Puts	Long	Bearish	Net Premium Paid	Strike - Net Premium Paid	Loss
Straight Puts	Short	Bullish	Strike - Net Premium Received	Net Premium Received	Gain
Vertical Call Spreads	Debit Spreads	Bullish	Net Premium Paid	S_High-S_Low-Net Premium Paid	Gain
Vertical Call Spreads	Credit Spreads	Bearish	S_High-S_Low-Net Premium Received	Net Premium Received	Loss
Vertical Put Spreads	Debit Spreads	Bearish	Net Premium Paid	S_High-S_Low- Net Premium Paid	Loss
Vertical Put Spreads	Credit Spreads	Bullish	S_High-S_Low- Net Premium Received	Net Premium Received	Gain
Bull Call Ratio Spreads		Slightly Bullish	Unlimited	((S_High-S_Low x # Long Contracts) ± Net Debit/Credit Paid/Received	Gain‡
Bear Put Ratio Spreads		Slightly Bearish	[S_Low 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	(S_High - S_Low x # Short Contracts) ± Net Debt/Credit Paid/Received	Unlimited	Loss*
Put Ratio Ratio Spreads		Extremely Bearish	(S_High - S_Low x # Short Contracts) ± Net Debt/Credit Paid/Received	[(S_High x # Long Contracts) - S_Low x # Short Contracts)] ± Net Debt/Credit Paid/Received	Loss*
Straddles	Long	Bullish or bearish, with rising volatility	Net Premium Paid	Unlimited	Loss
Straddles	Short	Neutral and falling volatility	Unlimited	Net Premium Received	Gain
Strangles	Long	Bullish/Bearish and rising volatility	Net Premium Paid	Unlimited	Loss
Strangles	Short	Neutral and falling volatility	Unlimited	Net Premium Received	Gain
Collars		Bearish/ Protective	Stock Price - S_Low +/- Net Premium*	S_High- Stock Price +/- Net Premium*	Variable
Calendar Spreads***	Debit Spreads	Moderate Bullish	Net Premium Paid	Unlimited⁺	Gain⁺⁺
Calendar Spreads***	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⁺⁺
Buy-Write and Unwind	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⁺⁺
Sell-Write and Unwind	Unwind	N/A	N/A	N/A	N/A
Combos	The strategic and financial characteristics of Combination orders can vary greatly depending on the specifics of the order.

S_High: High Strike Price in two option strategy

S_Low: 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