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Options 101

The Options Playbook

The income structures most traders actually use — what they are, when they make sense, and exactly where the risk sits.

Strategies

Cash Secured Put

Neutral to bullish

Get paid to set your buy price.

Sell one put and hold enough cash to buy 100 shares at the strike if assigned.

Use itYou want to own the stock lower, or collect premium while waiting on a quality name.
Max gainThe premium collected.
Max lossStrike minus premium, per share, if the stock goes to zero.
Main riskAssignment at a strike far above the market — you own shares at a loss.

Covered Call

Neutral to mildly bullish

Rent out shares you already own.

Own 100 shares and sell one call against them, usually above your cost basis.

Use itThe position is flat or grinding higher and you want income while you hold.
Max gainPremium plus the move up to the strike.
Max lossThe share position itself, cushioned by the premium.
Main riskA sharp rally caps your upside at the strike.

Bull Put Spread

Bullish

Defined-risk version of the short put.

Sell a put and buy a further out-of-the-money put in the same expiry as protection.

Use itYou like the direction but don't want to tie up cash for full assignment.
Max gainNet credit received.
Max lossSpread width minus the credit.
Main riskBoth strikes finish in the money — the loss arrives quickly and in full.

Iron Condor

Neutral

Sell the range, buy the wings.

A put spread below and a call spread above, both sold in the same expiry.

Use itImplied volatility is rich and you expect the stock to stay inside a band.
Max gainTotal credit, if price finishes between the short strikes.
Max lossWider wing width minus the credit.
Main riskA breakout through either wing before expiry.

The Wheel

Neutral to bullish

Cycle puts into calls on one stock.

Sell cash secured puts until assigned, then sell covered calls on the shares until they are called away. Repeat.

Use itYou are happy to own the stock long term and want to keep harvesting premium in both directions.
Max gainStacked premium from both sides, plus any share move up to the call strike.
Max lossPut strike minus premium if the stock goes to zero while you hold shares.
Main riskGetting stuck holding shares through a long decline — the premium cushions, it does not save you.

Bear Call Spread

Bearish to neutral

Get paid when the stock stays below a level.

Sell a call and buy a further out-of-the-money call in the same expiry as protection.

Use itYou think the stock fades or stalls and want defined risk above your short strike.
Max gainNet credit received.
Max lossSpread width minus the credit.
Main riskA rally through both strikes — losses are capped but arrive in full if it runs.

Iron Butterfly

Neutral

The condor's tighter, richer cousin.

Sell an at-the-money straddle and buy wings on both sides in the same expiry.

Use itYou expect the stock to pin near a strike and want a bigger credit than an iron condor.
Max gainTotal credit, if price finishes exactly at the short strikes.
Max lossWing width minus the credit.
Main riskAny meaningful move away from the body — the profitable range is narrow.

Poor Man's Covered Call

Neutral to mildly bullish

Covered-call income without buying 100 shares.

Buy a long-dated deep in-the-money call, then sell a shorter-dated call against it.

Use itYou want covered-call style income but don't want to tie up the full cost of the shares.
Max gainShort-call premium, repeating, while the long call holds its value.
Max lossThe debit paid for the long call if the stock collapses.
Main riskA sharp drop erodes the long call faster than the short premium cushions it.

Trading tips

Short, practical rules that keep small mistakes from becoming big ones.

Risk Control

Size for the worst case

Keep any single position's max loss to a small slice of your account — 2–5% is common. One bad trade should never decide your year.

Risk Control

Respect assignment risk

Short options can be assigned any time, especially near ex-dividend dates and deep in the money. Close or roll before expiry if you don't want the shares.

Position Management

Roll for a credit, not for hope

Rolling a tested position out in time is fine when it collects a net credit and your thesis still holds. Rolling at a debit to avoid a loss usually just defers it.

Risk Control

Sell rich premium, not cheap

Short premium works best when implied volatility is elevated versus its own history. Selling options when IV is crushed pays little for the same risk.

Risk Control

Mind the earnings calendar

Earnings can gap a stock through your strikes overnight. Either close before the report or size the position as if the gap will happen.

Position Management

Trade liquid underlyings

Wide bid-ask spreads quietly tax every entry, exit and roll. Stick to options with tight spreads and real open interest.

Psychology

Have a plan before you enter

Decide your profit target, your exit line, and your roll trigger before the order fills. Plans made mid-trade are usually emotions in disguise.

Psychology

Boredom is not a signal

Chasing a move you missed, or opening a trade just to be in something, is how good accounts bleed out. No setup, no trade.

Psychology

Take the loss at your line

A small, planned loss is the cost of staying in the game. Moving your stop to avoid booking it turns a bad trade into a portfolio problem.

Put the playbook to work

Log every position, watch assignment risk in real time and share setups with a single link.

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Educational content only. Options carry risk of substantial loss and are not suitable for every investor.