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Options strategies

There are a total of 4 basic option strategies:
  • Bought (long) call option
  • Sold (short) call option
  • Long put option
  • Short put option
Now, it’s time to move on to the next (and maybe the main) thing to understand options: payoff diagrams. These are mathematical charts with a quirk: x axis is the asset’s price, and y denotes the user’s profit or loss. Let’s delve into those!
Long call option payoff diagram. Source
Long put. Source
Short call. Source
Short put. Source
A summary chart:
Combined option payoff chart. Source
(Reference on option strategies)

Complex (spread) option strategies

It’s paramount to say that anything that can be combined (say, peanut butter & jelly, or doing a short transaction on a call option — do you recall it being a sale of a right to buy the asset?) can be combined on a higher level; option positions are no exception. Positions with different option types, strike prices, expiration dates can be combined for an almost infinite amount of possibilities — options trading is in essence like playing chess, art as much as a science: there’s an optimal position for every situation.
A guide on complex option strategies, called spreads (an individual position in a spread is called a leg — so legs should be spread wide, ahem, diversified!), for the interested can be found at O’Reillys Bible of Options strategies.