In today’s post, I want to answer how many different types of option trading strategies are there.
Stay tuned if you ever wondered about this question.
A lot of people look to different types of strategies, thinking, why don’t I try these trading strategies, and maybe that one will make me some money.
And it may not work out for you. And then, you hop to another strategy, and you continue this process until you find a strategy that works for you.
Ultimately, which you don’t realize is all these strategies work together. It’s all about tweaking these strategies.
And when you look and break down how many different types of strategies there are, there are probably hundreds of different types of strategies when it comes to trading options.
On top of that, if you try to manage those strategies in your unique way, you get into thousands of different variations.
Ultimately though, to simplify things, there’s only a handful of different strategies.
Before we get going in there, I want to remind you that we have an Options Trading Strategies Book that’s coming out soon.
It’s going to come out on February 24th – so very soon near the end of February as we wrap it up. And we also have a new course Understanding the Stock Market & How it Works (Version 2.0).
I buy something right here, and you can see that there’s a handful of different strategies here.
I could buy:
- a Single
- a Vertical
- Back/Ratio spread
- a Calendar
- Diagonal
- Straddle
- Strangle
- Covered Stock
- Collar/Synthetic (Combo)
- Butterfly
- Condor
- Iron Condor
- Vertical Roll
- Collar with Stock
- Double Diagonal
- Unbalanced
- Deep and Wide
You can see there’s a handful of different types of strategies out there. If you look at them, there’s a ton of variations out there.
Not only can you buy these, but you can also sell these. Not only do you have the initial buy, but you also have the initial sell.
And you have balanced, and you also have as you look at it there is unbalanced. There are unbalanced Butterfly, Condor, Iron Condor, and Vertical Roll.
As we start getting into this, it starts to become confusing because when you start getting into unbalanced, people will make up names for these different types of strategies.
Like an Iron Condor is a four-leg spread. A butterfly is where the strikes are in the middle. But it could be an Iron Butterfly that people also talk about.
It’s just named to help identify the strategy as we communicate as humans. That’s all these strategies are. The baseline when you look at trading options, you’re looking to be a net seller, and you’re looking to make money from the premium of the time decay.
As you get into it and you look at an unbalanced Iron Condor or Butterfly, you’re starting to shift things. As you add and stack more contracts or different strikes and spreads on one side or the other, it becomes unbalanced.
How do you know if you want to call a one Iron Condor instead of skewed? You could call it a warped. You could call it like a shotgun because you could set it up to where it looks like a shotgun.
And that’s what it comes down to. But as far as the strategies that you have to know, I’m going to share those with you right now.
There’s only a couple of baseline strategies. And when I look at it from the stem, your core strategy that you’re looking to do is you’re trying to sell option premium.
Here’s your straddle that you’re trying to sell. And then if you’re going into the world of Iron Condors for protection, you buy that protection here.
And now, this is the risk profile picture that you’re looking at. For those of you that are new, this is your profit, and this is the stock price.
A stock price over here gets higher. This might be 200. This might be 100. As it wiggles, that’s what it looks like. And your profit here, of course, might be the zero line over here. And then this could be like 500 over here.
Ultimately, when you look at this now, I could create different variations of this. I could skew it a little to the upside. That’s where it could look like a gun, a car. Is this a car strategy, race car strategy?
For everybody, it’s a little bit different naming conventions. But ultimately, the concept is the same.
The main strategies that you’ll want to look at when you’re getting started in trading options are these four main strategies beyond, of course, that initial one that we talked about. That’s a foundation.
You have positive Vega strategies, and you have some negative Vega strategies. And the ones that I always recommend you learn is when you look at negative Vega, this is your Iron Condor.
That’s the Iron Condor strategy. And then you look at it and here is your Butterfly strategy. These are all in the same months; that’s why they’re negative Vega.
Positive Vega, when you look at it, here is your Calendar. And then what you look at is maybe you have a Diagonal. Or it could be a Double Diagonal.
From these strategies, you can do all kinds of different things.
- What is it that you could do?
Well, a Calendar you could convert into like a Double Calendar. You could convert it into even a Triple Calendar. You could skew it. You could have one here and like two or three contracts a little bit further out.
With Diagonals, you can convert into a Double Diagonal. That will look very similar to this. You could skew those diagonals even more like to the upside.
You could skew them to the other side. With Iron Condors, you could put one leg a little higher or this leg a little higher or lower. You could create something like this.
Or something higher on the other end and lower on the other side. Butterflies the same thing.
You could skew one leg – it’s the broken wing; they call it this way or the other way.
From these four strategies, you can create all kinds of different things. I don’t want you to get too wrapped up into all these different strategies where you have a list from your broker platform.
That’s because here, you might have 12 to 14 different variations. And then more variations on top of that as you dig deeper into it. But remember, as you get into it, there are so many different ways that you could tweak them.
It’s really about learning and understanding how options work. Let’s say here’s Diagonal. Now, we’ll analyze this trade on Tesla. And now you’re learning how to tweak them these different strategies from the baseline.
Here’s our Diagonal, and now do I want a little bit more bullish or bearish. And now what you can do is slowly start tweaking it or rotating it if you think it’s a little more bearish.
And that’ll change your position and outlook. And then what you can do is stack multiple things on top. Let’s say I got one contract here, and then I could stack a second one on the put side maybe over at the 440 over here.
Now I have more of a Double Calendar or Double Diagonal version. That’s what I want to share with you today is that I don’t get too complicated and wrapped upon how many different strategies there are.
Look at the four basic ones that we’ve shared here:
- Calendar
- Diagonal
- Iron Condor
- Butterfly
And from them, things stem into all kinds of different variations.
With the Iron Condor, remember it’s broken into two verticals. If you’re brand new, that’s like a vertical baseline.
And an Iron Condor, if you take these two edges and you bring them together, that is your Butterfly. And you can do that with a Butterfly – it’s called an Iron Butterfly. It is the typical name for that.
It’s just different names and different conventions, but as far as the trade goes, it’s not too much different.
I want to remind you about the new course and the Options Trading Strategies Book that’s coming out.
New Course: Understand the Stock Market and How it Works! (Version 2)
More info about upcoming book >>> Options Trading Strategies
