Once you understand the basics of trading calls and puts, there’s a whole universe of intermediate and advanced strategies waiting for you. 

From iron condors to jade lizards … they may sound like metal bands, but they’re actually the strange names traders have given certain options strategies. 

Today, we’ll explore a handful of these exotic options strategies. Then, I’ll explain exactly how they work (and when you might use them).

Personally, I prefer to stick with simple calls and puts. I rarely trade these left-field strategies and don’t alert them to Spyder Members.

But that doesn’t mean one of these strategies won’t be perfect for you.

Remember, just like every trader is different … every strategy must be tailor-made to your personality, risk tolerance, and account size. 

Every options trading strategy has pros and cons. It’s about understanding how to combine different contracts to help you maximize your trading within a variety of setups, patterns, and market environments.

Whether you’re a seasoned options trader or just getting started, you should know these strategies to expand your tool belt (and potentially improve your performance).

Let me show you four popular options trading strategies you should be aware of…

Credit Spreads

To open a credit spread, you buy and sell contracts of the same type on the same stock, with the strike you sell closer to the money than the strike you buy. 

The advantage of a credit spread is that you get money in your account (“credit”) as soon as you open the position. 

Then you’re hoping the bid/ask spread between your two strikes narrows. And if so, you keep the credited premium — plus any additional profit. 

Trading credit spreads is a lower risk/lower reward strategy. It’s not gonna make you rich unless you have a lot of capital to invest, but it can be a great supplement to a more aggressive aspect of your strategy.

Hold this thought. I think you’ll understand credit spreads better once we go over the next strategy…

Debit Spreads

Debit spreads are the opposite of credit spreads. 

You still buy and sell contracts of the same type on the same stock… 

But this time, the strike you buy should be closer to the money than the strike you sell. 

Another key difference: where you’re paid to open a credit spread, it costs you money to open a debit spread. But there’s more potential upside in trading debit spreads — higher risk/higher reward. 

Debit spreads are more of an option buyer’s strategy, while credit spreads tend to appeal to option sellers. 

Bull call spreads (and bear put spreads) are the most popular forms of debit spreads.

These spread plays work best if you think a stock is going up with a very clear price target in mind. 

In these sorts of setups, all you need to do is buy a strike in your target range and sell the strike nearest to your high-end price target.

Additionally, debit spreads are cheaper trades to enter than if you just buy naked calls or puts — an interesting possibility for traders with small accounts.

Straddles and Strangles

Straddling is a directionally neutral options trading strategy that can be incredibly useful in a specific type of setup.

Tell me if this has ever happened to you…

You feel that a big move is ready to happen in a stock, but you have absolutely no idea which direction it will go.

Well, this is where straddles come into play…

When trading straddles, you can make money by predicting a big % move without being forced to pick a direction.

Straddles are created by buying a put and a call at the same strike price (and the same expiration date).

This strategy will profit off of a big move in either direction. 

The catch is this: Your straddle will cost almost twice as much to purchase as individual calls or puts. You’re paying for a higher probability of success.

Plus, the position will lose value if the share price doesn’t move considerably in one direction before your expiration date.

If you think the stock might trade flat or sideways, you shouldn’t open a straddle. 

But there are certain times when straddling can be opportune. For a real-world use case, think about earnings season…

Straddles can be especially useful during earnings season because we never know what weird specifics could ruin (or save) an earnings report…

Instead of speculatively betting in one direction or the other, making a 50/50 bet … you always have the choice of playing both sides via a straddle.

Additionally, there’s a variant of straddles known as strangles, where you buy a put and a call at different strikes on the same expiration date. 

Strangles can be useful if you have a specific range you think the stock could trade down (or up) to, beyond the current share price.

WARNING: Avoid straddles and strangles on contracts with extremely high implied volatility (IV) heading into an earnings report. The post-earnings “IV crush” often destroys both sides of the trade.

Covered Calls and Puts

If you own any long-term stock positions, pay attention to this one. Selling covered contracts can be a low-risk, consistently profitable strategy for anyone who owns optionable stocks…

DISCLAIMER: For this example, I’ll refer to covered calls. But remember that you can apply this same strategy to put contracts in the same way…

Most traders don’t sell naked options because it’s too risky. 

If you sell a naked call on the wrong week, the losses could exceed your initial position (or even your entire account size).

But if you own more than 100 shares of a stock long term, there’s a different strategy you should consider — selling covered calls.

A contract is “covered” if the seller of the contract owns at least 100 shares of the underlying stock. 

If the contract gets assigned, you won’t get margin called — you’ll just have to fork over your shares instead. 

You don’t want this outcome either. But trust me, getting your shares assigned is much better than getting margin-called.

Bottom Line: Covered calls allow you to sell options (and earn passive income) without risking your entire account.

Now that you’re aware of these strategies, you can open your mind up to a huge part of the options market you may have been missing. 

As you can see, option strategies are determined by how you combine different contracts. 

If you can mix up the perfect cocktail of calls and puts, you can trade setups that no common-share trader could even dream of. 

That said, don’t jump in and trade an exotic spread without doing your homework. 

If one of these strategies appeals to you … paper trade it before you risk any real money.

Expand your horizons and you may be surprised by what the complex world of options has to offer. 

Now, before we go, let’s take a look at:

💰The Biggest Smart-Money Bets of the Day💰

• $4.96 million bearish bet on CVS 06/21/2024 $55 puts @ $1.24 avg. (seen on 5/1)

• $2.15 million bullish bet on ETRN 07/19/2024 $11 calls @ $2.15 avg. (seen on 5/1)

• $1.65 million bearish bet on BITO 06/21/2024 $20 puts @ $1.03 avg. (seen on 5/1)

Happy trading,

Ben Sturgill

P.S. Take a look at my track record from 60 consecutive trades in 2024*:

• 56 Wins
• 4 Losses
• Win Rate = 93.3%
• Average Trade Result = 92.95%
• Average Gain of Winning Trades = 102.5%

If you want to get in on these setups before they move, there’s no better place to start than in my Spyder webinars.

TOMORROW, May 3 at 8:30 a.m. EST — I’ll break down everything you need to know to capitalize on the ‘smart money’ moves this week.

I’m excited to see you there — CLICK HERE NOW TO RESERVE YOUR SEAT.

*Past performance does not indicate future results