Understanding
Stock Options Trading
and Technical Analysis Basics

Volatile Option Strategies

The strategies on this page are considered volatile, as the maximum profit is obtained if the underlying stock price moves a lot, whether up or down. These trades are usually placed with an expiration date in the near future. Therefore the underlying stock price will need to move a lot in the short term.

Click the links for each strategy in order to see more detailed descriptions and examples.

 

Long Strangle

A Long Strangle is a strategy for stocks with high volatility but whose direction is uncertain. It is created by buying an out-of-the-money call option and an out-of-the-money put option with the same expiration date. If the stock climbs or falls, potential profits are unlimited. If the stock price doesn't move, you lose the premium spent on this position.

Long Strangle composite

Short Butterfly

A short butterfly involves selling an in-the-money call, buying 2 at-the-money calls and selling an out-of-the-money call. It is a strategy that is high in volatility but neutral in position. It is a credit position. You make limited profit if the stock climbs or falls. You incur losses if the stock doesn't move much.

Short butterfly individual components

Short Iron Butterfly

A short iron butterfly is a debit position that is high in volatility but neutral in position. It is created by buying an at-the-money call and selling an out-of-the-money call, together with buying an at-the-money put and selling an out-of-the-money put. You incur maximum losses if the stock price doesn't move, and gain maximum limited profit when the stock price moves a lot.

Short iron butterfly composite

Short Iron Condor

A Short Iron Condor is opened by creating an out-of-the-money bullish call spread and an out-of-the-money bearish put spread. It is a strategy that is high in volatility but neutral in direction, giving you limited profits if the stock price moves a lot, and limited losses if the stock price doesn't move. There are other more optimum strategies for this profit profile.

Short iron condor composite

Straddle

In a Straddle strategy, you buy both a Call and a Put for the same stock, with identical expiration dates and strike prices. This strategy is good for stocks where you expect volatility but don't know which direction it will go. You will profit whether the stock jumps or falls.