Skill: dromlakhani/options-strategies (version 1.0.0)

--- name: options-strategies description: > Comprehensive guide and execution framework for popular options trading strategies. Use when users ask to explain, set up, analyze, or compare options strategies including directional, neutral, volatility, and income-based plays. --- # Options Strategies Skill ## Overview This skill provides structured knowledge and step-by-step execution guidance for the most popular options strategies — from basic single-leg trades to complex multi-leg spreads. --- ## Strategy Taxonomy ### 1. Directional Bullish Strategies #### Long Call - **Setup**: Buy 1 call option - **Max Profit**: Unlimited - **Max Loss**: Premium paid - **Breakeven**: Strike + Premium - **Best For**: Strong bullish conviction with defined risk - **Greeks**: +Delta, +Vega, -Theta #### Bull Call Spread (Debit Spread) - **Setup**: Buy lower strike call, Sell higher strike call (same expiry) - **Max Profit**: Width of spread - net debit - **Max Loss**: Net debit paid - **Breakeven**: Lower strike + net debit - **Best For**: Moderate bullish view, lower cost than long call - **Greeks**: +Delta (reduced), -Vega (reduced), -Theta (reduced) #### Bull Put Spread (Credit Spread) - **Setup**: Sell higher strike put, Buy lower strike put (same expiry) - **Max Profit**: Net credit received - **Max Loss**: Width of spread - net credit - **Breakeven**: Higher strike - net credit - **Best For**: Moderately bullish, income generation, high probability trade - **Greeks**: +Delta, -Vega, +Theta #### Cash-Secured Put - **Setup**: Sell a put, hold cash to cover assignment - **Max Profit**: Premium received - **Max Loss**: Strike price - premium (stock going to zero) - **Breakeven**: Strike - premium - **Best For**: Willing to own stock at a discount, income generation #### Synthetic Long Stock - **Setup**: Buy ATM call, Sell ATM put (same strike, same expiry) - **Max Profit**: Unlimited - **Max Loss**: Substantial (like owning stock) - **Best For**: Bullish with less capital than buying stock --- ### 2. Directional Bearish Strategies #### Long Put - **Setup**: Buy 1 put option - **Max Profit**: Strike - Premium (stock to zero) - **Max Loss**: Premium paid - **Breakeven**: Strike - Premium - **Best For**: Strong bearish conviction, portfolio hedging - **Greeks**: -Delta, +Vega, -Theta #### Bear Put Spread (Debit Spread) - **Setup**: Buy higher strike put, Sell lower strike put (same expiry) - **Max Profit**: Width of spread - net debit - **Max Loss**: Net debit paid - **Breakeven**: Higher strike - net debit - **Best For**: Moderate bearish view, lower cost than long put #### Bear Call Spread (Credit Spread) - **Setup**: Sell lower strike call, Buy higher strike call (same expiry) - **Max Profit**: Net credit received - **Max Loss**: Width of spread - net credit - **Breakeven**: Lower strike + net credit - **Best For**: Moderately bearish, income generation --- ### 3. Neutral / Range-Bound Strategies #### Iron Condor - **Setup**: - Sell OTM call + Buy further OTM call (bear call spread) - Sell OTM put + Buy further OTM put (bull put spread) - All same expiry - **Max Profit**: Total net credit received - **Max Loss**: Width of wider wing - total credit - **Breakeven**: Two breakevens (upper and lower) - **Best For**: Low volatility expected, range-bound market - **Greeks**: -Delta (near zero), -Vega, +Theta #### Iron Butterfly - **Setup**: - Sell ATM call + Buy OTM call - Sell ATM put + Buy OTM put - ATM strikes are the same (body) - **Max Profit**: Net credit (at expiry at body strike) - **Max Loss**: Wing width - net credit - **Best For**: Very tight range expected around current price, higher credit than condor #### Short Straddle - **Setup**: Sell ATM call + Sell ATM put (same strike, same expiry) - **Max Profit**: Total premium received - **Max Loss**: Unlimited (on call side) - **Breakeven**: Strike ± total premium - **Best For**: Very low volatility expected — high risk, requires margin - **Greeks**: -Vega (strong), +Theta (strong), near-zero Delta #### Short Strangle - **Setup**: Sell OTM call + Sell OTM put (different strikes, same expiry) - **Max Profit**: Total premium received - **Max Loss**: Unlimited (on call side) - **Breakeven**: Call strike + premium / Put strike - premium - **Best For**: Low volatility, wider profit zone than short straddle, still high risk #### Covered Call - **Setup**: Own 100 shares + Sell 1 OTM call - **Max Profit**: (Call strike - stock cost) + premium - **Max Loss**: Stock price - premium paid (stock goes to zero) - **Best For**: Income generation on existing stock, mildly bullish to neutral - **Greeks**: -Delta (capped), +Theta --- ### 4. Volatility Strategies (Volatility Long) #### Long Straddle - **Setup**: Buy ATM call + Buy ATM put (same strike, same expiry) - **Max Profit**: Unlimited - **Max Loss**: Total premium paid - **Breakeven**: Strike ± total premium - **Best For**: Big move expected but direction unknown (earnings, events) - **Greeks**: Near-zero Delta, +Vega (strong), -Theta (strong) #### Long Strangle - **Setup**: Buy OTM call + Buy OTM put (different strikes, same expiry) - **Max Profit**: Unlimited - **Max Loss**: Total premium paid (less than straddle) - **Breakeven**: Wider than straddle - **Best For**: Big move expected, cheaper than straddle, needs larger move to profit #### Long Guts - **Setup**: Buy ITM call + Buy ITM put - **Best For**: Rare; similar to straddle but higher premium, narrower loss zone --- ### 5. Advanced / Multi-Leg Strategies #### Calendar Spread (Time Spread) - **Setup**: Sell near-term option, Buy same-strike far-term option - **Max Profit**: When stock at strike at near-term expiry - **Max Loss**: Net debit paid - **Best For**: Low near-term volatility, higher implied vol in back month - **Greeks**: +Vega, +Theta (net positive theta from near-term short) #### Diagonal Spread - **Setup**: Sell near-term option, Buy far-term option at different strike - **Max Profit**: Variable - **Best For**: Directional bias with theta decay benefit #### Ratio Spread (Call Ratio / Put Ratio) - **Setup**: Buy 1 option, Sell 2 options at higher/lower strike (same expiry) - **Max Profit**: Selling strike area - **Max Loss**: Can be unlimited on uncovered side - **Best For**: Directional with expectation of limited move; advanced traders only #### Butterfly Spread - **Setup**: - Buy 1 low strike, Sell 2 middle strikes, Buy 1 high strike - All same expiry, equidistant strikes - **Max Profit**: At middle strike at expiry - **Max Loss**: Net debit - **Best For**: Precise target price with minimal risk #### Jade Lizard - **Setup**: Sell OTM put + Sell OTM call spread (bear call spread) - **Max Profit**: Total credit received (no upside risk if credit > call spread width) - **Max Loss**: Put strike - total credit (downside) - **Best For**: Bullish to neutral, eliminates upside risk #### Broken Wing Butterfly - **Setup**: Standard butterfly with unequal wing widths - **Best For**: Directional bias with defined risk on one side, potential credit received #### PMCC (Poor Man's Covered Call) - **Setup**: Buy deep ITM long-dated call (LEAPS), Sell near-term OTM call - **Best For**: Simulates covered call at fraction of capital --- ## Decision Framework: Which Strategy to Use? ``` Market Outlook ├── Strongly Bullish │ ├── High conviction → Long Call │ ├── Defined risk/reward → Bull Call Spread │ └── Own stock → Covered Call (slight upside only) │ ├── Moderately Bullish │ ├── Income focus → Bull Put Spread (credit) │ └── Capital efficient → Bull Call Spread (debit) │ ├── Neutral / Sideways │ ├── Low volatility expected │ │ ├── Wide range → Iron Condor │ │ ├── Tight range → Iron Butterfly / Short Straddle │ │ └── Income on stock → Covered Call │ └── Elevated IV → Sell premium (straddle, condor) │ ├── Moderately Bearish │ ├── Income focus → Bear Call Spread (credit) │ └── Capital efficient → Bear Put Spread (debit) │ ├── Strongly Bearish │ ├── High conviction → Long Put │ └── Hedging portfolio → Long Put / Bear Put Spread │ └── Big Move Expected (No Direction) ├── High conviction → Long Straddle └── Lower cost → Long Strangle ``` --- ## Greeks Quick Reference | Greek | Meaning | Long Options | Short Options | |-------|---------|-------------|--------------| | **Delta** | Price sensitivity to underlying | + (calls) / - (puts) | Opposite | | **Gamma** | Rate of delta change | + | - | | **Theta** | Time decay per day | Negative (hurts you) | Positive (helps you) | | **Vega** | Sensitivity to IV change | + (benefits from IV rise) | - (hurt by IV rise) | | **Rho** | Sensitivity to interest rates | Minor for most retail trades | Minor | --- ## Key Metrics to Evaluate Any Strategy 1. **Max Profit** — What's the best case? 2. **Max Loss** — What's the worst case? 3. **Breakeven(s)** — Where must the stock be to not lose money? 4. **Probability of Profit (POP)** — Statistical likelihood of making money 5. **Risk/Reward Ratio** — Max profit ÷ Max loss 6. **Days to Expiration (DTE)** — Optimal DTE per strategy 7. **Implied Volatility (IV) Rank** — Is IV high (sell premium) or low (buy premium)? --- ## IV Rank Guide | IV Rank | Strategy Preference | |---------|-------------------| | < 20 | Buy premium (long straddle, long calls/puts) | | 20–40 | Neutral, directional debit spreads | | 40–60 | Credit spreads, iron condors | | > 60 | Sell premium (short straddle, strangle, iron condor) | --- ## Optimal DTE by Strategy Type | Strategy | Typical DTE | |----------|------------| | Short premium (condor, straddle) | 30–45 DTE | | Long premium (straddle, calls) | 60–90 DTE | | Calendar spread | Near: 7–14 DTE / Far: 30–60 DTE | | LEAPS strategies | 6–24 months | | Earnings plays | 1–7 DTE | --- ## Output Format When presenting a strategy analysis, always include: 1. **Strategy Name & Setup** (exact legs with strikes, expiry) 2. **Cost / Credit** (net debit or net credit) 3. **Max Profit / Max Loss / Breakeven(s)** 4. **Probability of Profit** (if calculable) 5. **Ideal Market Scenario** 6. **Risk Considerations** 7. **Adjustment Ideas** (if trade goes wrong) --- ## Common Adjustments | Position Going Wrong | Adjustment | |---------------------|-----------| | Long call losing | Roll down or out, convert to spread | | Short put being tested | Roll down and out to collect more credit | | Iron condor — one side tested | Roll untested side toward price (inversion); or close | | Long straddle not moving | Convert to directional by closing one leg | | Covered call in-the-money | Roll call up and out for credit |


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