This is how a bull call spread is constructed.

STRATEGY BUILDER

The bear put spread strategy is another form of vertical spread. In this strategy, the investor simultaneously purchases put options at a specific strike price and also sells the same number of puts at a lower strike price. Both options are purchased for the same underlying asset and have the same expiration date.

This strategy is used when the trader has a bearish sentiment about the underlying asset and expects the asset's price to decline. The strategy offers both limited losses and limited gains. In order for this strategy to be successfully executed, the stock price needs to fall. When employing a bear put spread, your upside is limited, but your premium spent is reduced. If outright puts are expensive, one way to offset the high premium is by selling lower strike puts against them.

This is how a bear put spread is constructed.

Essential Options Trading Guide

A protective collar strategy is performed by purchasing an out-of-the-money put option and simultaneously writing an out-of-the-money call option. The underlying asset and the expiration date must be the same. This strategy is often used by investors after a long position in a stock has experienced substantial gains. This allows investors to have downside protection as the long put helps lock in the potential sale price. However, the trade-off is that they may be obligated to sell shares at a higher price, thereby forgoing the possibility for further profits.

This is a neutral trade set-up, which means that the investor is protected in the event of a falling stock. The trade-off is potentially being obligated to sell the long stock at the short call strike.

However, the investor will likely be happy to do this because they have already experienced gains in the underlying shares. A long straddle options strategy occurs when an investor simultaneously purchases a call and put option on the same underlying asset with the same strike price and expiration date. An investor will often use this strategy when they believe the price of the underlying asset will move significantly out of a specific range, but they are unsure of which direction the move will take.

Theoretically, this strategy allows the investor to have the opportunity for unlimited gains.

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At the same time, the maximum loss this investor can experience is limited to the cost of both options contracts combined. This strategy becomes profitable when the stock makes a large move in one direction or the other. In a long strangle options strategy, the investor purchases an out-of-the-money call option and an out-of-the-money put option simultaneously on the same underlying asset with the same expiration date. An investor who uses this strategy believes the underlying asset's price will experience a very large movement but is unsure of which direction the move will take.

For example, this strategy could be a wager on news from an earnings release for a company or an event related to a Food and Drug Administration FDA approval for a pharmaceutical stock. Losses are limited to the costs—the premium spent—for both options. Strangles will almost always be less expensive than straddles because the options purchased are out-of-the-money options.

This strategy becomes profitable when the stock makes a very large move in one direction or the other. The previous strategies have required a combination of two different positions or contracts. In a long butterfly spread using call options, an investor will combine both a bull spread strategy and a bear spread strategy. They will also use three different strike prices. All options are for the same underlying asset and expiration date. For example, a long butterfly spread can be constructed by purchasing one in-the-money call option at a lower strike price, while also selling two at-the-money call options and buying one out-of-the-money call option.

A balanced butterfly spread will have the same wing widths. An investor would enter into a long butterfly call spread when they think the stock will not move much before expiration. The maximum loss occurs when the stock settles at the lower strike or below or if the stock settles at or above the higher strike call. This strategy has both limited upside and limited downside.

In the iron condor strategy, the investor simultaneously holds a bull put spread and a bear call spread. The iron condor is constructed by selling one out-of-the-money put and buying one out-of-the-money put of a lower strike—a bull put spread—and selling one out-of-the-money call and buying one out-of-the-money call of a higher strike—a bear call spread.

All options have the same expiration date and are on the same underlying asset. Typically, the put and call sides have the same spread width.

Options Trading Simulator with Streaming Quotes and Option Chains

This trading strategy earns a net premium on the structure and is designed to take advantage of a stock experiencing low volatility. Research options. Please enter a valid e-mail address. Your E-Mail Address.

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Charts, screenshots, company stock symbols and examples contained in this module are for illustrative purposes only. Please enter a valid ZIP code. All Rights Reserved. You can also customize the number of shares per option contract which is by default either by setting it globally or by setting a different multiplier for each leg.

The latter can be useful for positions containing different types of options on the same underlying. One-time payment, yours forever. Does it work in my version of Excel? The simulator works in all versions of Excel from Excel 97 to the latest, also including Office and Excel for Mac. For older versions you may need to use a different version of the simulator, which is also included. Generally you need your software to support Excel formulas and macros.

Does it work for options in my country? The simulator does not depend on a particular country or currency — you just need to set the correct contract multiplier in a designated cell. Since , the simulator has been used by customers all over the world, including the US, Europe, Australia, India, China, Japan, Russia, Brazil, and many other countries. How do I pay?

Is it secure? Contact me for alternative ways to pay wire transfer, bitcoin. Please contact me. Implied Volatility Calculator — Calculates IV from option prices and helps you understand the essential volatility input. Have a question or feedback?