Options Strategy

An Options strategy refers to a method for trading calls and puts by combining them together. Usually, this involves both Long and Short directions (i.e. buying and selling Options contracts) but some strategies are exclusively Long or Short. Each of the individual option contracts is called a 'Leg'. Most strategies are multi-Leg apart from Long or Short single calls or puts.

Some Options strategies such as covered calls also involve owning the Underlying stock (or asset with similar characteristics).

There are numerous types of option strategy and how appropriate they are depends on the Underlying instrument and the objectives of the trader. Some Options strategies such as Spreads and single Long Options are defined risk (in other words, the maximum amount that can be lost on a trade is known in advance). Other strategies such as Short straddles and selling naked puts or calls are undefined risk (or at least they can go to zero in the case of puts).

Undefined risk strategies are those where the net position is Short. Defined risk strategies are either net equal Long and Short or net Long.