Option buying strategies, explained end to end
Buying an option means paying a premium for a right, never an obligation. Your loss is capped at what you paid; your reward depends on the underlying moving far enough, fast enough, to beat time decay. These are the strategies built on that trade-off.
What are option buying strategies? Option buying strategies are positions whose net premium is paid rather than received. The buyer's maximum loss is limited to that premium, while time decay works against the position every day. Long Call, Long Put, Married Put, Protective Put and the two synthetics are the core members of this family.
Long Call
BullishA Long Call is the purchase of a call option, giving the holder the right but not the obligation to buy the underlying at the strike. The loss is cap…
Long Put
BearishA Long Put is the purchase of a put option, giving the holder the right but not the obligation to sell the underlying at the strike. The loss is capp…
Married Put
BullishA Married Put is the simultaneous purchase of the underlying and a protective put on it, bought together as one planned position. The put caps the do…
Protective Put
BullishA Protective Put is a put bought against an underlying already held, to insure existing holdings against a fall. The put caps the downside at its str…
Synthetic Long Call
BullishA Synthetic Long Call is a long position in the underlying combined with a long at-the-money put, a pairing whose payoff matches an ordinary long cal…
Synthetic Long Put
BearishA Synthetic Long Put is a short position in the underlying combined with a long at-the-money call, a pairing whose payoff matches an ordinary long pu…
Collar
NeutralA Collar holds the underlying, buys a protective put below the current price and sells a call above it, so the loss is floored below the put strike a…
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Frequently asked questions
What are option buying strategies?
Option buying strategies are positions whose net premium is paid rather than received. The buyer's maximum loss is limited to that premium, while time decay works against the position every day. Long Call, Long Put, Married Put, Protective Put and the two synthetics are the core members of this family.
How many option buying strategies are there?
StrategyGyan documents 7 option buying strategies in full, each with a payoff diagram, its Greeks, its maximum profit and loss stated as a formula and as a worked number, and both NIFTY and BANKNIFTY examples.
Which of these has defined risk?
Long Call, Long Put, Married Put, Protective Put, Synthetic Long Call, Synthetic Long Put, Collar carry a structurally capped maximum loss.