An option strategy executed by selling a call option while holding the same underlying asset. This strategy is generally used if you expect the underlying asset price to stay relatively flat or increase moderately. For example, you would mint/sell 1 SOL/USDC call while locking up 100 SOL as collateral for calls with contract size of 100.
An option strategy composed of selling a put option while retaining enough cash to purchase the underlying asset if the option contract is executed by it's buyer. This strategy is generally used if you are bearish on an asset short term, but bullish long term. For example, you would mint/sell 1 SOL/USDC put while locking up 4000 (strike price * contract size) USDC as collateral for puts at strike price of 40 and contract size of 100.
A Bull Call Spread is an option strategy that you can utilize if you think the price of the underlying asset will go up, but not by much. To execute this strategy, you use two call options to form a price range with a lower and higher strike price.
To start, purchase a call with a strike price that is higher than the current market price of the underlying asset. Then, sell a call with a strike price that is even higher than the strike price of the call you purchased with the same expiration date. Selling this call helps offset the cost of purchasing the original call.
When executing this strategy, your losses are limited to the net cost of creating the spread, but this also limits your potential gains. Typically this strategy is executed during times of high market volatility.
The Bear Put Spread can be used when you are expecting a moderate to significant drop in an asset’s price, and you want to reduce the cost and risk associated with your trade. Similar to the Bull Call Spread, this strategy is achieved by using two separate put options.
To execute this trade, you would purchase a put option while also selling a put option with the same expiration date at a lower strike price. Selling the put option with the lower strike price helps cover some of the premium you paid when purchasing the initial put. You’re also greatly reducing your risk as the risk is limited to the cost of setting up the spread.
This strategy allows you to profit from the price of the underlying asset going down while not exposing you to the theoretically unlimited loss that can occur when short selling.
When market volatility picks up drastically, and you’re not sure what’s going to happen, you can utilize this strategy. With this strategy you can protect yourself from short term downside losses, while also retaining the ability to make money if price goes up.
If you hold the underlying asset, and want to protect this position from a potentially drastic sell off, you would first purchase an OTM put. Then, you would sell an OTM call with the same expiration date as the put you purchased.
Writing the call option essentially pays for the put, and in theory you could even end up with a net gain using this strategy. This sound like a no brainer way to protect your position, but there is one major drawback. If price doesn’t go down, and instead surges upwards past the written call's strike price, you’ll be forced to sell your underlying asset to the purchaser of the call option.
This strategy is typically used when traders expect a news event to move the price of a particular asset. To execute this strategy, you would purchase both a call and a put with the same expiration date and strike price. Since the strike price is ATM or close to it, small moves in either direction are essentially canceled out.
While this strategy can be a useful way to prepare yourself for a potentially large move in price, it does have downsides. The market may not react to this event at all, and also, you are not the only person aware of this event. Options sellers will increase their premiums because of this event, making this an expensive strategy to execute.
Due to the expensive nature of this strategy, it is cheaper and arguably better to simply bet on one direction. This decision is of course up to the trader. Considering that the potential profit is unlimited, and the potential loss is limited, it may be worth it.
This strategy is nearly identical to the Long Straddle strategy except for two key differences. Rather than purchasing an ATM call and an ATM put, you would purchase an OTM call and an OTM put. Also, rather than having the same strike price, the call and put you purchase for this strategy will have different strike prices. They will still have the same expiration date.
Purchasing an OTM call and an OTM put makes this strategy cheaper to execute than a Long Straddle, however, it is considered riskier because price will have to be an even larger amount to be profitable.
In general, Butterfly Spreads are strategies that utilize both bull spreads and bear spreads to generate a market neutral strategy with fixed risk and profit. These strategies utilize four option contracts that all have the same expiration date, with three equidistant strike prices. The Long Call Butterfly Spread is essentially a combination of a bull call spread and a bear call spread.
To set up a Long Call Butterfly spread, first you would buy a call at strike price A. Then sell two calls at strike price B. Finally, you would purchase one last call at strike price C.
The sweet spot for this set up is if the asset is at strike B upon expiration. This makes your max potential profit from this strategy strike B minus strike A minus the net debit paid. Your max potential loss is simply the cost to set up the spread. Your two break even points are at strike price A plus the net debit paid, and strike price C minus the net debit paid.
Since you are managing four separate contracts with three different strike prices, we would only recommend this strategy once you are a more seasoned options trader.