Diversify, diversify, diversify — spread your bets so you don’t face-plant like a rookie bagholder if one play goes south. Options aren’t just for stonks, my friend. There’s a whole buffet of underlying assets for you to YOLO on. Learn those options trading strategies by asset class, and you’ll be diving into the deep end with eyes wide open, ready for tendies.

Options Strategies for Stocks

Options on individual stocks are tied to a single company, and that company’s performance directly influences the options’ value. Stock options offer higher potential rewards but also carry greater risks. They also tend to be more volatile, and liquidity can vary widely depending on the popularity of the underlying stock. Expirations are usually a month or more, although many large-cap stocks now offer weekly options.

Covered Call

This strategy is perfect if you already own shares of a stock and want to make extra income. Sell a call option on the shares you hold, collecting a premium upfront. If the stock doesnt move or rises only slightly, the option expires worthless, and you keep the premium. You’ll have to sell your shares at the strike price if the stock price rises above it, but you still profit from the premium and any gains up to the strike price.

Protective Put

If you own shares and are worried about a big price drop, buy a put option. This gives you the right to sell your shares at the strike price, protecting you from losing big. For example, if you own a stock trading at $100 and buy a put with a $95 strike price, you can sell it for $95 even if it drops to $80. While you have to pay a premium for the put, it’s worth the loss to safeguard your portfolio against major declines.

Long Straddle

A long straddle is a higher-risk strategy that can pay off in volatile markets where the stock could make a major move up or down. Buy both a call option and a put option at the same strike price and expiration date. If the stock swings deep in either direction, one of the options becomes highly profitable, potentially covering the cost of both premiums and generating a profit.

Trading Options on ETFs

Exchange-traded fund options are linked to a basket of assets, such as technology stocks or commodities, offering built-in diversification that lessens the impact of events that affect individual companies. Their pricing is driven by broader market or sector movements, making them generally less volatile than stock options but still sensitive to macroeconomic influences like interest rate changes or GDP reports. ETFs tend to be highly liquid and have the flexibility of both monthly and weekly expirations.

Iron Condor

This strategy works well when you believe an ETF, like the $DIA (tracks the Dow Jones Industrial Average), will stay within a tight price range. Initiate a call spread (sell a call option and buy a higher strike price call) and a put spread (sell a put option and buy a lower strike price put). The premiums you collect from selling both spreads provide income as long as the ETF stays between the strike prices by expiration.

LEAPS Call (Long-Term Equity Anticipation Securities)

Buying a long-term equity anticipation security call option on an ETF like $QQQ (tracks the Nasdaq 100) is a smart play if you expect long-term growth but don’t want to tie up a lot of money by buying the ETF outright. LEAPS options have expiration dates over a year away, giving you time to ride out market fluctuations. If $QQQ rises significantly, you profit from the growth.

Bear Put Spread

If you think an ETF is going to drop but want to manage your risk, the bear put spread is a great option. Buy a put option at a higher strike price and sell another put at a lower strike price on the same ETF, such as $SPY (tracks the S&P 500). You make money if the ETF price drops but cap your maximum gain at the difference between the two strike prices. The net premium you collect makes this a more cost-effective bearish strategy compared to just buying a put outright.

Options Strategies for Indices

You can also trade options for a specific market index, such as the S&P 500, or $SPX. These options provide exposure to the performance of an entire index, and pricing is based on broader market movements. Index options tend to be less volatile but can still react sharply to major economic reports, geopolitical developments, or interest rate changes. High liquidity and tight bid-ask spreads are common, while both weekly and monthly expirations offer flexibility for a range of strategies.

Calendar Spread

A calendar spread is buying a long-term call option and selling a short-term call option at the same strike price. This works best when you expect the index to stay near the strike price in the short term but potentially rise over the longer term. If the index stays steady, the short-term option expires, and you can profit while keeping the long-term option for future gains.

Butterfly Spread

Use this strategy if you expect little index movement during a specific period. To set it up, buy one call at a lower strike price, sell two calls at a middle strike price, and buy one call at a higher strike price. The goal is to profit if the index price stays near the middle strike price at expiration. The potential reward is capped, but it’s cost-efficient and low-risk in the index environment.

Naked Call

Selling a naked call is a high-risk, high-reward strategy where you sell a call option without owning the underlying index. You keep the premium as profit if the index stays below the strike price at expiration. However, if the index rises sharply, your losses can be unlimited since there’s no cap on how high the index can go. Only experienced traders who are confident in their market outlook and can manage the significant risks involved should try naked calls.

Trading Options on Commodities

Commodity options are based on the prices of raw materials like oil, gold, or agricultural products. Their value is driven by supply and demand, and they are particularly sensitive to unpredictable factors like weather, geopolitical tensions, and production levels. These options can be more volatile than equity-based options, as commodity prices often experience sharp movements due to global events or seasonal shifts. Liquidity in commodity options can vary widely depending on the popularity of the underlying commodity.

Strangle

A strangle is designed to profit from big price movements in either direction, making it a great choice for highly volatile commodities like silver. To set it up, you buy an out-of-the-money call option and an out-of-the-money put option. The trade works if the commodity’s price moves significantly, either up or down, and exceeds the cost of both premiums. This strategy is high-risk but can yield substantial rewards during volatile market conditions.

Bull Call Spread

Conservative bull call spreads are ideal if you expect a moderate price increase in a commodity but want to limit your risk. You buy a call option at a lower strike price to benefit from upward movement and sell a call option at a higher strike price to offset the cost of the first option. The trade is less expensive than buying a single call outright, but your potential profit is capped at the difference between the strike prices.

Collar

A collar strategy is perfect for traders who own a commodity-related stock and want to protect against big losses. To create a collar, buy a put option to safeguard your stock against price drops while selling a call option to reduce the cost of the put. The call you sell limits your upside potential because you may have to sell your stock if the price rises above the call’s strike price, but it’s a smart way to manage risk while still participating in potential gains.

Forex Options Strategies

Foreign currency pairs, such as EUR/USD and USD/JPY, are the foundation for foreign exchange options. Their value is highly sensitive to macroeconomic factors — forex options can be more volatile due to rapid shifts in currency values driven by interest rate changes, trade agreements, or political instability. Businesses and investors often use these options to manage the risk of currency fluctuations in international trade or investments. Major currency pairs typically have narrow bid-ask spreads and flexible expiration dates.

Bull Put Spread

When you believe a currency will strengthen against another (e.g., EUR/USD), trade a bull put spread. Sell a put option at a higher strike price to collect a premium and simultaneously buy a cheaper put option at a lower strike price to limit your risk. If the euro holds its value or rises, both options expire worthless, and you keep the premium. However, the put you bought limits how much you can lose should the euro weaken instead.

Straddle

Say you think there will be a significant price move in a currency pair, like USD/JPY, but you’re unsure of the direction. Initiate a straddle by buying a call option to profit if the yen weakens (causing the USD to rise) and a put option to profit if the yen strengthens. For this strategy to work, the currency pair’s price must move far enough in one direction to cover the cost of both premiums. Straddles are best suited for volatile market conditions or around major economic events like interest rate decisions.

Long Call

This straightforward strategy is for when you’re bullish on a currency, such as GBP/USD. You buy a call option expecting the pound to rise against the dollar. If the pound strengthens, the value of your call increases and step three: profit. Your risk is limited to the premium you paid for the option, while your upside is theoretically unlimited, depending on how far the pound rises before expiration.

Comparing Strategies Across Asset Classes

Different options strategies can be straight-up bangers across multiple asset classes. Let’s break down how these plays can deliver the goods no matter what asset your ADHD brain chose for you this morning.

Covered Calls

Covered calls generate income from assets you already own. If the stock rises modestly, you profit up to the strike price, though you’ll need to sell the shares if the price exceeds that level.

Stocks: This involves selling call options on individual shares to earn premiums while holding the stock.
ETFs: Funds are less volatile, and covered calls offer stable, consistent returns.
Commodities: Covered calls help offset the erratic price swings of the underlying asset by earning income during calm periods.

Straddles

With a straddle, you stand to profit from significant price movements in either direction.

Stocks: Straddles are common strategies played ahead of earnings reports or major news to capitalize on volatility, regardless of the stock's direction.
Commodities: Straddles work well for assets like silver or oil, which can experience sharp price swings due to geopolitical events or supply disruptions.
Forex: Straddles on currency pairs like USD/EUR are useful during central bank announcements or economic uncertainty when large moves are expected.

Iron Condors

Iron condors are adaptable strategies where traders sell a call spread and a put spread to profit from limited price movement.

ETFs: Iron condors shine when trading funds like $SPY, where the broad market tends to stay within predictable ranges during low-volatility periods.
Indices: This strategy is equally effective for indices, which are generally less volatile and more stable.
Stocks: Although less common, iron condors can still work for companies with steady price ranges, such as large-cap, dividend-paying stocks.

Bull Call Spreads

Buying a call and selling another at a higher strike price is a popular strategy for bullish outlooks across asset classes.

Stocks: Bull call spreads are a cost-effective way to trade upward momentum without the higher risk of outright calls.
Commodities: Bull call spreads mitigate the cost of single options while allowing for gains if prices rise.
Forex: This strategy can be applied to currency pairs when you expect one currency to gradually strengthen over another.

Collars

Collars are protective strategies that combine a long put with a short call to safeguard a position when IV is high.

Stocks: Collars are useful when holding volatile shares, offering downside protection while funding the cost of the put by selling a call.
Commodities: Collar strategies protect against steep price declines due to volatility while maintaining gains.

Forex: During volatile economic conditions, collars help stabilize trades, shielding against adverse currency movements while capping profits at a predefined level.

Case Studies by Asset Class

All right, fam: Let’s whip out the crayons and sketch out how some of these strategies could work in real life.

Stock: Tesla ($TSLA) — The Covered Call

Suppose you own 100 shares of $TSLA, currently trading at $338.59 per share. To generate additional income, you decide to sell a call option with a strike price of $350, expiring in one month, for a premium of $5 per share.

Scenario 1: If $TSLA remains below $350 at expiration, the option expires worthless. You keep your 100 shares and the $500 premium, effectively reducing your costs.
Scenario 2: If $TSLA rises above $350, the buyer may exercise the option, requiring you to sell your shares at $350. In this case, you realize a capital gain of $11.41 per share, totaling $1,141, plus the $500 premium, resulting in a combined profit of $1,641.

ETF: SPDR S&P 500 ETF ($SPY) — The Iron Condor

Assuming $SPY is trading at $450, and you anticipate minimal price movement over the next month, you implement an iron condor strategy:

Call Spread:

Sell a call option with a $455 strike price, receiving a $2 premium.
Buy a call option with a $460 strike price, paying a $1 premium.

Put Spread:

Sell a put option with a $445 strike price, receiving a $2 premium.
Buy a put option with a $440 strike price, paying a $1 premium.

The net credit in this transaction is $2 per share.

Outcome: If $SPY remains between $445 and $455 at expiration, all options expire out-of-the-money, and you retain the $2 per share premium. If $SPY moves outside this range, losses occur but are limited to the difference between strike prices minus the net credit, in this case, $3 per share.

Index: Invesco QQQ Trust ($QQQ) — The Calendar Spread

With $QQQ trading at $380, you anticipate a gradual price increase over the next few months. You establish a calendar spread by:

Buying a call option with a $385 strike price, expiring in three months, for a $10 premium.
Selling a call option with the same $385 strike price, expiring in one month, for a $5 premium.

The net cost of this strategy is $5 per share.

Outcome: If $QQQ approaches $385 near the first expiration, the short call may expire worthless or be bought back at a lower price, allowing you to sell another short-term call to further reduce the long call's cost. If $QQQ rises significantly, the long call gains value, potentially offsetting any losses from managing the short calls.

Commodity: SPDR Gold Shares ($GLD) — The Straddle

$GLD is trading at $180. You expect significant volatility, but hey, it’s a commodity — you never know which way it will go. So, you initiate a straddle by:

Buying a call option with a $180 strike price for a $4 premium.
Buying a put option with a $180 strike price for a $3 premium.

The total cost of this trade is $7 per share.

Outcome: One of the options will gain enough value to cover the total premium paid if $GLD moves significantly above $187 or below $173 by expiration. However, if $GLD remains near $180, both options may expire OTM, resulting in a loss of the $7 premium.

Forex: EUR/USD — The Bull Put Spread

Expecting the euro to strengthen against the U.S. dollar, with the EUR/USD exchange rate at 1.049, you initiate a bull put spread:

Sell a put option with a 1.045 strike price, receiving a premium of 0.005 (500 pips).
Buy a put option with a 1.040 strike price, paying a premium of 0.003 (300 pips).

The net credit is 0.002 (200 pips).

Outcome: If EUR/USD remains above 1.045 at expiration, both options expire worthless, and you keep the 200 pips. If EUR/USD falls below 1.045 but stays above 1.040, the short put incurs a loss, offset by the gain from the long put, resulting in a loss, but a limited one. If EUR/USD drops below 1.040, the maximum loss is the difference between strike prices minus the net credit, totaling 300 pips. Depending on standard lot sizes, the value of 300 pips can range anywhere from $30 to $3,000.

Pick the Best Options Trading Strategy for the Asset Class

There are top-tier, galaxy-brain options strategies tailored for each asset class, and your risk tolerance is the name of the game. Choose — and choose wisely. Picking the wrong strategy is like showing up to aMOASS battle with a butter knife. You’ll get smoked. Play smart, and you’ll be ready to seize every opportunity the market throws your way.