Summary
The four basic strategies are the components of more complex Option strategems.
At this stage, you should make sure that for each of these different Options trades you understand:
- How are you looking for the market to perform (i.e. what is the rationale behind the strategy)?
- What are the risks involved?
- What are the potential rewards?
| Basic Strategy | Risk (max. loss) | Reward (max. profit) |
|---|---|---|
| Buy Call | Limited to premium | Unlimited |
| Buy Put | Limited to premium | Almost unlimited* |
| Sell Call | Unlimited | Limited to premium |
| Sell Put | Almost unlimited* | Limited to premium |
*The underlying cannot fall below zero.