Common Options Trading Strategies Explained: Bull Spreads, Straddles & More – CapitalKeeper
By CapitalKeeper | Beginner’s Guide | Indian Equities | Market Moves That Matter
Learn the most popular options strategies like bull call spreads, bear put spreads, straddles, and iron condors. Understand risk-reward, market outlook, and practical examples to trade options confidently.
Objective
To learn about widely used options strategies (single-leg and multi-leg) and when to apply them based on market outlook and risk appetite.
Key Topics Covered
1. What Are Options Strategies?
- A combination of calls, puts, or both to create defined risk/reward setups.
- Suitable for bullish, bearish, or neutral markets.
- Used for hedging, income generation, or speculation.
2. Basic Single-Leg Strategies
a. Long Call
- Outlook: Bullish
- Setup: Buy a call option expecting stock to rise.
- Risk: Limited to premium paid.
- Reward: Unlimited upside potential.
b. Long Put
- Outlook: Bearish
- Setup: Buy a put option expecting stock to fall.
- Risk: Limited to premium paid.
- Reward: Large profit if stock falls sharply.
3. Common Multi-Leg Strategies
a. Bull Call Spread
- Buy lower strike call + Sell higher strike call.
- Use: When moderately bullish.
- Risk: Reduced premium cost.
- Reward: Capped profits.
b. Bear Put Spread
- Buy higher strike put + Sell lower strike put.
- Use: When moderately bearish.
- Risk: Reduced premium.
- Reward: Limited downside profit.
c. Straddle
- Buy ATM Call + Buy ATM Put (same strike, same expiry).
- Use: When expecting high volatility but unsure of direction.
- Risk: High premium cost.
- Reward: Profit in big moves either way.
d. Iron Condor
- Sell OTM call spread + Sell OTM put spread.
- Use: When expecting low volatility (range-bound market).
- Risk/Reward: Limited in both directions.
4. Key Considerations
- Match strategy to market outlook (bullish/bearish/neutral).
- Check implied volatility before choosing spreads or straddles.
- Monitor Greeks (Delta, Theta, Vega) for time decay and volatility effect.
Practical Example
1. Covered Call (Buy-Write)
Objective: Generate income from existing stock holdings.
Strategy:
- Hold 100 shares of a stock.
- Sell (write) a Call option against it.
Example:
- Stock: Reliance @ ₹3,000
- Sell 1 lot (3100 Call @ ₹50 premium)
- Max Profit: Premium (₹50) + Capital Gains (if stock ≤ 3100)
- Max Loss: Unlimited if stock surges (but capped by stock ownership)
✅ Best For:
- Conservative investors holding long-term stocks.
- Sideways or mildly bullish markets.
2. Protective Put (Married Put)
Objective: Hedge downside risk while staying long on a stock.
Strategy:
- Buy 100 shares of a stock.
- Buy a Put option (acts as insurance).
Example:
- Stock: TCS @ ₹4,000
- Buy 1 lot (3900 Put @ ₹80 premium)
- Max Profit: Unlimited upside (stock rises).
- Max Loss: Limited to (Stock Purchase Price – Put Strike + Premium Paid).
✅ Best For:
- Investors worried about short-term downside but bullish long-term.
- High-volatility stocks (e.g., Adani, IT stocks).
3. Long Straddle
Objective: Profit from big moves (up or down).
Strategy:
- Buy ATM Call + ATM Put (same strike, expiry).
Example:
- Stock: HDFC Bank @ ₹1,700
- Buy 1700 Call @ ₹60 & 1700 Put @ ₹50
- Breakeven: Above 1810 or below 1590
- Max Profit: Unlimited (if stock moves sharply).
- Max Loss: Premium paid (₹110).
✅ Best For:
- High-volatility events (earnings, RBI policy).
- When expecting a big move but unsure of direction.
4. Long Strangle (Cheaper Straddle)
Objective: Profit from large moves at a lower cost than a straddle.
Strategy:
- Buy OTM Call + OTM Put (different strikes).
Example:
- Stock: Infosys @ ₹1,800
- Buy 1850 Call @ ₹40 & 1750 Put @ ₹30
- Breakeven: Above 1920 or below 1680
- Max Profit: Unlimited (if stock moves sharply).
- Max Loss: Premium paid (₹70).
✅ Best For:
- When expecting volatility but want lower cost than straddle.
5. Bull Call Spread (Debit Spread)
Objective: Profit from moderate upside at lower cost.
Strategy:
- Buy ITM/ATM Call + Sell OTM Call (same expiry).
Example:
- Stock: Bajaj Finance @ ₹8,000
- Buy 7900 Call @ ₹150
- Sell 8200 Call @ ₹70
- Net Debit: ₹80 (Max Loss)
- Max Profit: (Strike Difference – Net Debit) = ₹220 – ₹80 = ₹140
✅ Best For:
- Moderately bullish markets.
- Lower risk than naked calls.
6. Bear Put Spread (Debit Spread)
Objective: Profit from moderate downside at lower cost.
Strategy:
- Buy ITM/ATM Put + Sell OTM Put (same expiry).
Example:
- Stock: Tata Motors @ ₹950
- Buy 960 Put @ ₹40
- Sell 920 Put @ ₹15
- Net Debit: ₹25 (Max Loss)
- Max Profit: (Strike Difference – Net Debit) = ₹40 – ₹25 = ₹15
✅ Best For:
- Moderately bearish markets.
- Cheaper than buying naked puts.
7. Iron Condor (Neutral Strategy)
Objective: Profit from low volatility (sideways market).
Strategy:
- Sell OTM Call Spread + Sell OTM Put Spread.
Example:
- Nifty at 25,000
- Sell 25,200 Call @ ₹80
- Buy 25,400 Call @ ₹30
- Sell 24,800 Put @ ₹70
- Buy 24,600 Put @ ₹20
- Net Credit: ₹100 (Max Profit)
- Max Loss: ₹200 (if Nifty breaches either side).
✅ Best For:
- Sideways markets (low IV).
- Income generation with defined risk.
8. Butterfly Spread (Neutral Strategy)
Objective: Profit from minimal movement (pin at a strike).
Strategy:
- Buy 1 ITM Call + Sell 2 ATM Calls + Buy 1 OTM Call.
Example:
- Stock: ITC @ ₹500
- Buy 490 Call @ ₹15
- Sell 500 Call @ ₹8 (x2)
- Buy 510 Call @ ₹4
- Net Debit: ₹3 (Max Loss)
- Max Profit: If stock closes at 500 (Strike Difference – Net Debit).
✅ Best For:
- Highly range-bound stocks.
- Low-risk, high-reward setups.
Which Strategy Should You Use?
| Market Condition | Best Strategy |
|---|---|
| Bullish | Covered Call, Bull Call Spread |
| Bearish | Protective Put, Bear Put Spread |
| High Volatility | Long Straddle/Strangle |
| Low Volatility | Iron Condor, Butterfly |
| Neutral/Sideways | Credit Spreads, Iron Condor |
Key Takeaways
✔ Covered Calls & Protective Puts – Best for stock holders.
✔ Straddles & Strangles – For volatile markets.
✔ Vertical Spreads (Bull/Bear) – Limited risk directional bets.
✔ Iron Condors & Butterflies – Neutral strategies for income.
Start with 1-2 strategies, master them, then expand! 🚀
Key Takeaways
- Options strategies allow risk-defined trades.
- Combining calls and puts enhances flexibility and hedging.
- Always plan exit (target and stop-loss) in advance.
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