Option strategies are created by simultaneous buying or selling of one or more options which are different in one or more option parameters. To buy or sell option a strategy is needed, and before the selection of an appropriate option strategy, it is required to understand how options will be helpful in managing portfolios. A strategy is successful only if it performs in a way to achieve investors’ financial goals. There are different kinds of investment strategies, by mastering simple strategies initially one can gain confidence to start playing with options. In general, more complicated option strategies are appropriate for experienced investors. Option strategies allow accumulating profit according to the price movement of the underlying asset. Strategies can be classified broadly as bullish, bearish or neutral. Going into details regarding further classification, there will be in neutral category long or bullish on volatility or short or bearish on volatility.

Long Call

Being the most basic and simple strategy, long call is generally known as the basic entry point of the derivative segment of the market. Buying a call means we are bullish and expect the price of the underlying to move in up word direction. The maximum loss is of the premium only.

Short Call

Short call implies being bearish in assumption and expect the underlying to move in downward direction. Maximum profit is limited to the premium collected; but can face greater risk if market moves heavily in opposite direction.

Long Put

It is opposite of long call strategy where a put option is bought with bearish outlook. Loss is limited up to the premium paid.

Short Put

It is similar to buying a call and opposite of buying a put. Investor sells a put when he is bullish about the market. Maximum profit is limited up to the premium received.

To attain a particular objective it is required to know financial environment and the strategy has to be chosen accordingly. If the markets are volatile one set of strategies are chosen and if the markets are calm and quite investors have to take a look on defensive or slow moving strategies. It is always risky to take a highly loaded directional trade i.e. if portfolio is formulated keeping a bullish view and trades are taken heavily in the same direction then good profits can be booked if the market moves in the desired direction. But what happens if the market moves in opposite direction? Such highly risky unidirectional portfolios must be avoided by taking a balance view and try to build a non-directional portfolio by taking strategies which are not unidirectional. Greeks may be used to balance portfolios to certain extent. Hence there may be other ways in which options and their different permutations and combinations can be used to produce interesting payoffs. This is because of this reason it is not surprising that option trading has steadily increased in popularity and continues to fascinate investors from all walks of life.