OPTIONS

STRATEGY
GUIDE
OPTIONS
STRATEGY
GUIDE

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• Steps for setting up the trade & target P/L
• Visual representations of the profit and loss zones
• Defensive tactics if the trade goes against you

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TABLE OF CONTENTS RISK TYPE COMPLEXITY
LEVEL 1

? DEFINED LEVEL 2

UNDEFINED LEVEL 3

LEVEL 4

BULLISH STRATEGIES
Covered Call 5
Long Call Vertical Spread 6
Call ZEBRA 7
Poor Man’s Covered Call (Call Diagonal Spread) 8
Call Calendar Spread 9
Call Butterfly 10
Big Lizard 11

BEARISH STRATEGIES
Covered Put 12
Long Put Vertical Spread 13
Put ZEBRA 14
Poor Man’s Covered Put (Put Diagonal Spread) 15
Put Calendar Spread 16
Put Butterfly 17
Reverse Big Lizard 18

OMNIDIRECTIONAL STRATEGIES
Put Front-Ratio Spread 19
Call Front-Ratio Spread 20
Put Broken Wing Butterfly 21
Call Broken Wing Butterfly 22
Call Broken Heart Butterfly 23
Put Broken Heart Butterfly 24

NEUTRAL STRATEGIES
Short Strangle 25
Short Straddle 26
Iron Condor 27
Dynamic Width Iron Condor 28
Iron Fly 29

NEUTRAL-BULLISH
Short Naked Put 30
Short Put Vertical Spread 31
Jade Lizard 32

NEUTRAL-BEARISH
Short Naked Call 33
Short Call Vertical Spread 34
Reverse Jade Lizard 35

GLOSSARY 36
FOUNDATIONS

STOCKS VS. OPTIONS Most investors still think of stock as a long-term investment; short-term stock trades can tie up
a ton of capital, with the added difficulty of needing to pick stock price direction correctly and
consistently. However, options trading allows us to shift our mindset from “where do I think this
stock will go?” to “where do I think this stock will NOT go?”.
Options trading is not a 50/50 bet in the short-term. Our style of options trading allows us to pick
different prices to become long or short stock, known as strike prices, which allows us to have
flexibility, and even make money if we’re directionally wrong! And because options themselves
usually require less capital than 100 shares of stock, traders can use options strategies to do more
with their money.

WHAT IS A CALL OPTION? A call option is a contract you can purchase that allows you to buy 100 shares of stock at the
contract’s expiration and strike price chosen if the stock price is above the strike price you
selected.
Just like stock, you can short (sell) a call. If the stock price is above the strike price you choose at
expiration, you would be obligated to provide 100 shares of stock at that strike price.
If you own a call and the price of the stock goes up above the strike price of your call, the value of
the call goes up as well. The call now has more value than it did before because it allows you to
buy the stock at a discount (your strike price). If the stock goes down below your strike, the value
of the call option goes down as well. This is because at expiration if the stock price is below the
call strike it renders the option useless and worthless. Why would anyone buy shares of stock at a
higher price than what the market is currently offering? Answer: they wouldn’t!
Learn more about how call options work & how to trade them.

WHAT IS A PUT OPTION? Put options let the owner sell stock at a set price for a limited time, rather than buy it. A put
contract owner wants the stock price to go down rather than up.
If you own a put, when the price of a stock goes down below the strike you’ve selected, you have
the right to sell shares at a higher price than the current stock price. Many investors look at put
contracts as a form of price protection, or insurance against stock they already own, since it allows
them to “lock in a sales price” for their 100 shares of stock or more.
If the stock price goes up, the value of the put option goes down. If the stock price is above the put
option at expiration, the put contract is worthless because investors could sell stock at a higher
price in the market compared to the put strike.
Learn more about how put options work & how to trade them.

INTRINSIC & EXTRINSIC Intrinsic value refers to real value at expiration. Call options have real value when the stock price is
VALUE above the strike price. Put options have real value when the stock price is below the strike price.
Extrinsic value is the extra value associated with a contract based on time left to expiration, or the
market’s assumption of where the stock might go (implied volatility). Ultimately, the more time to
expiration, the more extrinsic value there will be in an option.
When it comes down to it, option premium is really just made up of intrinsic and extrinsic value.
Learn more about intrinsic & extrinsic value.
 OPTIONS STRATEGY

Bullish stock position where we are selling an ATM/OTM call against 100 long shares of stock to reduce the cost

COVERED CALL
basis of the shares. The short call risk is ‘‘covered’’ by the 100 shares of long stock we own.

DIRECTIONAL ASSUMPTION IV ENVIRONMENT DAYS TO EXPIRATION PROBABILITY OF PROFIT

Bullish High 45 50% to 70%

SETUP EXAMPLE

With XYZ stock

at $100, we may
100
1 Buy 100 shares of stock C
S 105
purchase 100
shares and sell the
105 call against the
shares to reduce our
Sell an ATM/OTM call for
STOCK PRICE C 2 every 100 shares
breakeven price.
100
100 S

MAX PROFIT
Distance Between Stock Purchase &
Short Call + Credit Received DELTA
Long
MAX LOSS
Stock Purchase Price - Credit Received VEGA
Short
PROFIT TARGET
50% of Max Profit THETA
Long
BREAKEVEN
GAMMA
Stock Purchase Price - Credit Received
Dynamic

TASTYLIVE APPROACH

HOW THE TRADE WORKS

IDEAL
The stock moves up to the short call strike by the expiration of the contract.
This results in max extrinsic value collected from the short call, as well as
max value gained on the long shares up to the call strike.

100 S

S C
DEFENSIVE TACTICS

C
If the short call loses value, we can roll it out in
time to add extrinsic value to the trade, reducing
the cost basis on the shares further. We can also
move the call strike down in the same cycle to
achieve the same cost basis reduction result, or a
combination of rolling out in time and down a few
NOT IDEAL strikes. Avoid rolling the call below your breakeven
The stock goes down. This results in losses in the shares you own, although the short call will on the trade overall to ensure potential profit if the
lose value and hedge the loss on those shares. stock rallies back.

VOLATILITY IF VOLATILITY EXPANDS HIGH IV

We may hold - this may result in an extrinsic value loss in the short call, but extrinsic value goes to BASELINE
zero by expiration. If this is paired with a stock price selloff, we can adjust the short call if desired. LOW IV

IF VOLATILITY CONTRACTS
The short call may decrease in value and add profit to our position overall, especially if this is paired
with a small bullish move.

EXPIRATION

100
S

ORIG C
IF OTM AT EXPIRATION IF ITM AT EXPIRATION
The short call will expire worthless - we can deploy another The short call will be exercised and ‘‘call away’’ the 100 shares of stock
one in a further expiration, or lean long with the shares. we own. The position will go away and we will realize max profit.

TAKEAWAYS
Covered calls are cost basis reduction strategies where we are limiting our upside If we want to preserve our shares and avoid assignment, we can roll the short call
profit potential to guarantee a credit and cost basis reduction on the shares. With out in time and up a few strikes for a small credit before the short call moves ITM.
this said, we should place our short call at a level we’re comfortable capping our This moves the existing extrinsic value to the next cycle, and moving our short
profit potential at. strike up gives us more potential profit on the shares.

5
 OPTIONS STRATEGY

LONG CALL
Bullish defined risk debit trade where we are betting on the stock moving above our short call strike price by the
expiration of our contract. Spread width depends on account size, risk tolerance, etc.

VERTICAL SPREAD DIRECTIONAL ASSUMPTION

Bullish
IV ENVIRONMENT
Any
DAYS TO EXPIRATION
45
PROBABILITY OF PROFIT
40% to 60%

SETUP EXAMPLE

With XYZ stock at

1 Buy an ITM call
$100, we might look
to buy a 95/105
call spread and pay
105 C
around $5.00.
C
STOCK PRICE

C 100

MAX PROFIT
Distance Between Strikes - Debit Paid
2 Sell an ATM/OTM call
DELTA
MAX LOSS Long 95 C
Debit Paid
VEGA
PROFIT TARGET Flat
50% of Max Profit
THETA
BREAKEVEN Flat
Long Call Strike + Debit Paid
GAMMA
Flat

TASTYLIVE APPROACH

HOW THE TRADE WORKS

IDEAL
The stock increases in value. A long call spread is a directionally bullish
position - so ideally the stock price rises so that the long call strike
increases in value to a greater degree than the short call, resulting in a
profit.

C
C

C
DEFENSIVE TACTICS
Long call spreads trade for a debit, which means
NOT IDEAL extending duration actually increases risk since
we’d pay another debit to roll the trade out in time.
The stock decreases in value. The value of the long call spread would decrease, We can roll the short call down closer to the long
which means the spread will be less valuable to sell to close compared to the original call to reduce the net debit on the trade, but we
purchase price, which would result in a loss. don’t roll below our breakeven price.

VOLATILITY IF VOLATILITY EXPANDS

HIGH IV
We may hold the position - this may be paired with a sell-off in the stock price, but our BASELINE
risk is capped at the debit paid so we typically let the trade play out. However, we can LOW IV
close the trade if our assumption has changed.

IF VOLATILITY CONTRACTS
We may hold the position - if this is paired with a bullish move in the stock price, we may
see profit in the spread and we can close if we’re happy with the trade.

EXPIRATION IF ITM AT EXPIRATION

Both options will be trading for intrinsic value, and the trade will be at max profit. To avoid
assignment fees and the possibility of one of the options moving OTM, close the trade
prior to expiration.

ORIG C
IF OTM AT EXPIRATION IF PARTIALLY ITM AT EXPIRATION
The trade will be at max loss, as both
options will have lost all value. We let the We either close the trade or roll out in time to extend it. We avoid letting
trade expire worthless. these trades go through expiration because if the long call is ITM and the
short call is OTM, we can come back to the market in the next trading
session with 100 shares of stock.

TAKEAWAYS
Vertical spreads have a less volatile P/L because of the long option that With spreads, it’s important to realize that options will be exercised if they
defines our risk. If we see profit on the short option, we will see losses on the are ITM and held through expiration. If one strike is ITM and the other moves
long option and vice versa. For this reason, we should expect to be in spread OTM, close the trade prior to expiration to avoid unwanted shares.
trades longer than naked options to reach profit targets.

6
 OPTIONS STRATEGY

A bullish back-ratio spread, where we are buying two ITM calls and selling one ATM call to remove all extrinsic value

CALL ZEBRA
and achieve 100 positive deltas. This strategy acts like a married put, since the most we can lose is the debit paid, and
we have 100 shares of long stock profit potential.

DIRECTIONAL ASSUMPTION IV ENVIRONMENT DAYS TO EXPIRATION PROBABILITY OF PROFIT

Bullish Any Any 50%

SETUP EXAMPLE

1 Buy 2 ITM calls With XYZ stock at

$100, we may buy
two of the 95 calls
and sell one 100
C strike call for a debit
with no extrinsic
STOCK PRICE
C value.

100 C
C
MAX PROFIT
Unlimited

C C
DELTA
Sell 1 ATM call (to remove 95
2 Long / Dynamic
MAX LOSS
Debit Paid all extrinsic value)
VEGA
PROFIT TARGET Flat
25% of Debit Paid
THETA
BREAKEVEN Flat
Short Call Strike + Any Extrinsic Value Paid
GAMMA
Dynamic

TASTYLIVE APPROACH

HOW THE TRADE WORKS

IDEAL
The stock price moves up. This is a synthetic long stock position that acts like a married put, where you
have 100 shares of upside profit potential with limited risk below your long call strikes. Unlike a married
put, the call ZEBRA gives you defined risk without having to pay extrinsic value for the protection (if set
up with zero extrinsic value on entry).
C
C

C C
C

C
NOT IDEAL
DEFENSIVE TACTICS
The stock price moves down. The synthetic stock position will lose value at almost the same
rate as owning 100 shares of stock, but losses will taper off below the long call strikes, since In an effort to reduce the cost of the trade, we can roll the
the most you can lose is the debit paid for the trade. short call down a few strikes if the stock sells off. This will
reduce the long delta amount on a rally, but if that never
happens, we reduce the overall debit paid on the trade by
rolling the call down.

VOLATILITY
IF VOLATILITY EXPANDS HIGH IV

This trade will likely be unaffected as we start with zero extrinsic value, unless this is paired with BASELINE
a bearish move in the stock price, which could result in losses. LOW IV

IF VOLATILITY CONTRACTS
The trade could be profitable if this is paired with a bullish move in the stock price.

EXPIRATION
IF ITM AT EXPIRATION

C We close the trade for a profit.

C ORIG

C
IF OTM AT EXPIRATION IF PARTIALLY ITM AT EXPIRATION
We will realize max loss on the trade, which is the debit We close the trade and restructure in a later cycle if we want to stay in. We want to avoid
paid up front. assignment by closing the trade prior to expiration.

TAKEAWAYS
This can be a great long stock replacement strategy with limited risk if you’re Long term cycles & high IV products will be more expensive trades on entry. Short
directionally correct. The risk profile for a call zebra is similar to a married put, term cycles and low IV products will be cheaper trades on entry. We still need the
since our risk is capped at the debit paid for the spread. directional move to be profitable.

7
 OPTIONS STRATEGY

POOR MAN’S A bullish synthetic covered call strategy that consists of an ITM long-term call to replicate 100 shares of stock, with
an ATM/OTM short call in a near-term cycle to reduce cost basis. Net debit should not exceed width between strikes.

COVERED CALL DIRECTIONAL ASSUMPTION

Bullish
IV ENVIRONMENT
Low
DAYS TO EXPIRATION
45 to 60
PROBABILITY OF PROFIT
50% to 60%

SETUP EXAMPLE

With XYZ stock

Sell an OTM call in a near- at $100, we may
2
+ TIME
STOCK PRICE
C term expiration cycle buy the 90 call in a
long-term expiration
105 C
and sell the 105
call in a near-term
C
- TIME
expiration.

Buy an ITM call in a long-

1 term expiration cycle
100

MAX PROFIT
Distance Between Strikes - Debit Paid +
Estimated Extrinsic Value in Long Option DELTA
Long
MAX LOSS
Debit Paid VEGA
Long
PROFIT TARGET
50% of Estimated Max Profit THETA
Flat
BREAKEVEN
Long Call Strike + Debit Paid GAMMA
90 C
Dynamic

TASTYLIVE APPROACH

HOW THE TRADE WORKS

IDEAL
The stock moves up to the short call strike by the expiration of the contract. This results
in max extrinsic value collected from the short call, as well as max value gained on the
long call option that acts as a synthetic long stock position, plus any remaining extrinsic
value in the long option as well.
+ TIME

C C

C
DEFENSIVE TACTICS

C
- TIME
If the short call loses value, we can roll it out in time to
add extrinsic value to the trade, further reducing the cost
basis on the position. We can also move the call strike
down in the same cycle to achieve the same cost basis
NOT IDEAL reduction result, or a combination of rolling out in time
and down a few strikes. Avoid rolling the call below your
The stock goes down. This results in losses on the long call you own, although the short call
breakeven on the trade overall to ensure potential profit if
will lose value and hedge the loss on the long call, and you would not lose as much as owning
the stock rallies back.
100 shares of stock if there is a big selloff.

VOLATILITY
IF VOLATILITY EXPANDS HIGH IV

We typically hold onto the trade - extrinsic value moves against us are temporary, but if this is BASELINE
paired with a stock selloff, we can adjust the short call if we want to. LOW IV

IF VOLATILITY CONTRACTS
We can consider adjusting the short call if it has lost value by rolling it out in time or moving it
closer to the long strike, but not below our breakeven point.

EXPIRATION

+ TIME

ORIG C
- TIME

IF OTM AT EXPIRATION IF ITM AT EXPIRATION

We will realize max loss on the trade, which is the The trade will be at max profit - we close the trade.
debit paid up front.

TAKEAWAYS
Make sure the debit paid is no more than 75% the width of the strikes. If you pay The idea here is to buy a long-term low volatility contract and take advantage of
a debit higher than the width of the strikes and there is a huge move where the heightened IV in the front-month by placing our short contract there. This setup
spread moves ITM, you can lose money as the strikes lose extrinsic value and can be very efficient for products with pending news, or big realized movements
start to trade with pure intrinsic value. that pump up the near-term IV.

8
 OPTIONS STRATEGY

CALL CALENDAR
A neutral, defined risk trade where we are betting on an increase in IV while the stock stays near our strikes, or for the
stock to stay stagnant and our short premium to decay faster than our long premium.

SPREAD DIRECTIONAL ASSUMPTION

Bullish
IV ENVIRONMENT
Low
DAYS TO EXPIRATION
45
PROBABILITY OF PROFIT
N/A

SETUP Buy call in a long-term

EXAMPLE

1 expiration cycle With XYZ stock at

$100, we may buy
+ TIME
the 105 call in a
C long-term expiration
and sell the 105
call in a near-term
105 C C
STOCK PRICE C
- TIME
2 Sell call in a near-term
expiration cycle
expiration.

100
MAX PROFIT
Variable
DELTA
MAX LOSS Long
Debit Paid
VEGA
PROFIT TARGET Long
10-25% of Debit Paid
THETA
BREAKEVEN Short
Variable
GAMMA
Dynamic

TASTYLIVE APPROACH

HOW THE TRADE WORKS NOT IDEAL

The stock goes well beyond the call calendar strikes in either direction. This will result
in the options losing their extrinsic value, which is what you paid for the trade. Intrinsic
value is completely offset, resulting in a loss. This is an extrinsic value trade.

+ TIME

C
C

C
- TIME
C

DEFENSIVE TACTICS
If the short call option loses a lot of
value, we can roll it out in time closer
IDEAL to the long call option’s expiration.
This will result in a reduction in our
The stock trickles up to the call calendar strikes over time. This will result in an expansion
net debit and max loss, but it will
in the value of the long call option with a contraction in value of the near-term short call
desensitize the trade’s ability to
option, resulting in a net profit.
appreciate in value with the short
option now closer to the long option’s
expiration.

VOLATILITY
IF VOLATILITY EXPANDS HIGH IV
BASELINE
The call calendar could see a profit, as long as this expansion is not paired with a bearish
LOW IV
move. A bearish move may have a greater effect than the increase in implied volatility.

IF VOLATILITY CONTRACTS
This could result in a profit if the contraction is paired with a bullish move, as the long
option could still increase in value to a greater degree than the short option.

IF ITM AT EXPIRATION
The short call will convert to 100 short shares of stock. Your long
EXPIRATION call still protects your risk on the short shares, but buying power will
increase dramatically. Close or roll the short call to avoid this.
+ TIME

C
ORIG C
- TIME

IF OTM AT EXPIRATION IF ATM AT EXPIRATION

The short call will expire worthless, and you can hold the long call or roll As time passes, the short option will decay faster than the long option, and ultimately
the short call into a new expiration to reduce cost basis further. expire worthless. This is the ideal spot for the stock to be and will have the highest
potential profit at this point. The value of the spread being the decay in the short call
option plus the remaining extrinsic value in the long call.

TAKEAWAYS
This strategy is typically not one we will hold to expiration, and we temper This is a short-term, vol expansion trade where we are purely trading the
our profit target because the spread cannot go too far ITM or OTM. extrinsic value and IV spread between the short front-month option and the
long back-month option. For this reason, we look for a quick exit if we see
profitability and a move towards our spread.

9
 OPTIONS STRATEGY

Symmetrical long call spread and short call spread that share the same short strikes. This is a low probability trade

CALL BUTTERFLY
because we pay for it up front and need the stock to be within our strikes at expiration.

DIRECTIONAL ASSUMPTION IV ENVIRONMENT DAYS TO EXPIRATION PROBABILITY OF PROFIT

Bullish Any 15 to 45 20% to 40%

SETUP Buy further OTM call for

EXAMPLE

1 Buy an ATM/OTM call 3 equidistant spreads

With XYZ stock at
$100, we may buy 110 C
the 100 call, sell two
C C of the 105 calls, and
buy one 110 call for
a small debit.
105 C C
STOCK PRICE C

2
C
Sell 2 further OTM calls 100 C
MAX PROFIT
Width of Long Spread - Debit Paid
DELTA
MAX LOSS Long / Dynamic
Debit Paid
VEGA
PROFIT TARGET Long
25% of Long Spread Width
THETA
BREAKEVEN Short
Long Call Strike + Debit Paid
GAMMA
Dynamic

TASTYLIVE APPROACH

HOW THE TRADE WORKS

IDEAL
The stock is between our strikes at expiration and we sell out of the butterfly for
a higher amount than we bought it for.

C C

C
C C

C C
DEFENSIVE TACTICS C
If the long spread is ITM and near max
NOT IDEAL value, we sell out of it to retain that
The spread is completely ITM or OTM and we realize max loss of the value and either hold the credit spread,
debit paid up front. or manipulate the trade into something
else like an iron condor.

VOLATILITY
IF VOLATILITY EXPANDS HIGH IV
BASELINE
This trade will likely be unaffected - narrow defined risk trades do not have too much
LOW IV
vega exposure.

IF VOLATILITY CONTRACTS
This trade will likely be unaffected - narrow defined risk trades do not have too much vega
exposure.

IF PARTIALLY ITM AT EXPIRATION

EXPIRATION We look to sell the butterfly for a profit at expiration.
We avoid holding through expiration as this can result
in unwanted shares.

C C

ORIG
C
C
IF OTM AT EXPIRATION IF ITM AT EXPIRATION
We close the trade for max loss to avoid assignment. We close the trade for max loss to avoid assignment.

TAKEAWAYS
These trades are low probability because the range of success is so small The less time we have to expiration, the more we can expect to get out of
relative to the normal stock price movement for the cycle. We like to roll a butterfly if the stock price moves through it. Too much extrinsic value will
into equidistant butterflies from broken wing butterflies for this reason, as prevent the trade from moving much at all.
opposed to starting with them.

10
 OPTIONS STRATEGY

A bullish position that is constructed by selling an ATM short put combined with an ATM short call spread. The total

BIG LIZARD
credit received should be greater than the width of the call spread to remove upside risk entirely.

DIRECTIONAL ASSUMPTION IV ENVIRONMENT DAYS TO EXPIRATION PROBABILITY OF PROFIT

Bullish High 45 60% to 80%

EXAMPLE
SETUP
Sell an ATM call credit spread with
2 the same short strike as the put
With XYZ stock at
$100, we may sell
the 100 put and sell
STOCK PRICE
C the 100/105 call
spread for a credit
over $5.00.
105 C
C
1 Sell an ATM put P
MAX PROFIT 100 C P
Credit Received
DELTA
MAX LOSS Long
Short Put Strike x 100 - Credit Received
VEGA
PROFIT TARGET Short
25% Max Profit
THETA
BREAKEVEN Long
Short Put Strike - Credit Received
GAMMA
Short

TASTYLIVE APPROACH

HOW THE TRADE WORKS

IDEAL
The stock stays between our breakeven range. There is no risk to the upside if our net credit is
greater than the width of the call credit spread, so the trade is profitable if the stock is above our
short put breakeven at expiration.

C
C

C
C
P
DEFENSIVE TACTICS

P
If we near expiration and our short put
is still ITM, we can roll it out in time and
NOT IDEAL close the short call spread, or redeploy
The stock goes down. We have a naked short put, so if the stock drops below another call spread against the short put.
our short put strike, we take on intrinsic value losses equivalent to 100 shares of
stock, less the credit received from selling the big lizard up front.

VOLATILITY
IF VOLATILITY EXPANDS HIGH IV
BASELINE
We may hold - this may result in an extrinsic value loss, but extrinsic value will always go to zero by
LOW IV
expiration.

IF VOLATILITY CONTRACTS
We may have a winning trade - if we are happy with our profit target we can close the trade.

EXPIRATION

ORIG C

C
IF ITM AT EXPIRATION

If the naked put is ITM at expiration, it has to be closed P IF ITM/ATM AT EXPIRATION

or rolled out in time, otherwise it will turn into stock. If the Since the short options are placed at the same strike, one side of the position will always
call spread is fully ITM at expiration, it will get exercised/ be ITM. To avoid taking potential assignment of shares, we close out the position which
assigned and result in no position. We close or roll prior would be profitable if the call spread is ITM or if the stock is within our breakeven to the
to expiration to avoid unwanted shares. put side.

TAKEAWAYS
This trade will almost always be ITM at any time, so we temper our profit target to Ensure the credit received is wider than the width of the call spread, so that there
25%, since even at expiration, one of these strikes will hold intrinsic value. is no risk to the upside. The big lizard call spread will be much wider than the jade
lizard call spread since the short strikes are ATM.

11
 OPTIONS STRATEGY

Bearish stock position where we are selling an ATM/OTM put against 100 short shares of stock to improve the cost

COVERED PUT
basis of the shares. The short put risk is ‘‘covered’’ by the 100 shares of stock we are short.

DIRECTIONAL ASSUMPTION IV ENVIRONMENT DAYS TO EXPIRATION PROBABILITY OF PROFIT

Bearish High 45 50% to 70%

SETUP EXAMPLE

With XYZ stock at

$100, we may short
100
1 Short 100 shares of stock
S
100 shares and sell
the 95 put against
the shares to reduce
our breakeven price.
Sell an ATM/OTM put for
2 every 100 shares P STOCK PRICE 100
100 S

MAX PROFIT
Distance Between Short Stock &
Short Put + Credit Received DELTA

MAX LOSS
Short 95 P
Unlimited VEGA
Short
PROFIT TARGET
50% of Max Profit THETA
Long
BREAKEVEN
GAMMA
Short Stock Price + Credit Received
Dynamic

TASTYLIVE APPROACH

HOW THE TRADE WORKS

NOT IDEAL
The stock goes up. This results in losses in the shares you are short,
although the short put will lose value and hedge the loss on those shares.

100 S

S P
DEFENSIVE TACTICS

P
If the short put loses value, we can roll it out in
time to add extrinsic value to the trade, improving
the cost basis on the short shares to the upside.
We can also move the put strike up in the same
cycle to achieve the same cost basis reduction
result, or a combination of rolling out in time and
IDEAL up a few strikes. Avoid rolling the put above your
The stock moves down to the short put strike by the expiration of the contract. This results breakeven on the trade overall to ensure potential
in max extrinsic value collected from the short put, as well as max value gained on the short profit if the stock sells off.
shares down to the put strike.

VOLATILITY IF VOLATILITY EXPANDS HIGH IV

We may hold - this may result in an extrinsic value loss in the short put, but extrinsic value goes to BASELINE
zero by expiration. If this is paired with a stock price selloff, we may be able to close for a winner. LOW IV

IF VOLATILITY CONTRACTS
The short put will likely lose a good amount of value, especially if this is paired with a bullish move.
We can adjust the put to hedge our short shares if this is the case.

EXPIRATION

100
S

P ORIG

IF ITM AT EXPIRATION IF OTM AT EXPIRATION

The short put will be exercised and we will ‘‘be put’’ 100 The short put will expire worthless - we can deploy another one in a
shares of stock. This will offset our 100 short shares and we further expiration, or lean short with the shares.
will realize max profit.

TAKEAWAYS
Covered puts are cost basis reduction strategies where we are limiting our If we want to preserve our short shares and avoid assignment, we can roll the
downside profit potential to guarantee a credit and cost basis reduction on short put out in time and down a few strikes for a small credit before the short put
the short shares. With this said, we should place our short put at a level we’re moves ITM. This moves the existing extrinsic value to the next cycle, and moving
comfortable capping our profit potential at. our short strike down gives us more potential profit on the short shares.

12
 OPTIONS STRATEGY

LONG PUT
Bearish, defined risk debit trade where we are betting on the stock moving below our short put strike price by the
expiration of our contract. Spread width depends on account size, risk tolerance, etc.

VERTICAL SPREAD DIRECTIONAL ASSUMPTION

Bearish
IV ENVIRONMENT
Any
DAYS TO EXPIRATION
45
PROBABILITY OF PROFIT
50% to 60%

SETUP EXAMPLE

With XYZ stock at

1 Buy an ITM put $100, we might look
to buy a 105/95
put spread and pay
105 P
around $5.00.
STOCK PRICE
P
100
P
MAX PROFIT
Distance Between Strikes - Debit Paid
2 Sell an ATM/OTM put DELTA
MAX LOSS Short 95 P
Debit Paid
VEGA
PROFIT TARGET Flat
50% of Max Profit
THETA
BREAKEVEN Flat
Long Put Strike - Debit Paid
GAMMA
Flat

TASTYLIVE APPROACH

HOW THE TRADE WORKS

NOT IDEAL
P
The stock increases in value. The value of the long put spread would
decrease in value, which means the spread will be less valuable to sell P
to close compared to the original purchase price, which would result in
DEFENSIVE TACTICS
a loss.
Long put spreads are debit trades which means
extending duration actually increases risk since
we’d pay another debit to roll the trade out in time.
P We can roll the short put up closer to the long put
to bring in more credit and reduce our net debit
paid and reduce max profit potential, but we do not
roll above our breakeven price.

IDEAL
The stock decreases in value. A long put spread is a directionally bearish position - so
ideally the stock price decreases so that the long put strike increases in value to a
greater degree than the short put.

VOLATILITY IF VOLATILITY EXPANDS HIGH IV

Extrinsic value may have increased - but this is primarily a bearish trade and if the BASELINE

increase in IV is paired with a bearish move, we may see profitability and can close if we LOW IV

are happy with the exit price.

IF VOLATILITY CONTRACTS
Extrinsic value may have decreased, but this could be paired with a rally in the product. We
may consider holding the position, or rolling the short option up closer to the long option,
but not above the breakeven price.

EXPIRATION
IF OTM AT EXPIRATION
The trade will be at max loss, as both options will have
lost all of their value. We let the trade expire worthless.

P ORIG
IF ITM AT EXPIRATION
The trade will be at max profit. We close the IF PARTIALLY ITM AT EXPIRATION
trade.
We either roll out in time to extend the trade or close it. We avoid letting these trades go through
expiration, because if the long put is ITM and the short put is OTM we can come back to the market the
next trading session with 100 shares of short stock.

TAKEAWAYS
Vertical spreads have a less volatile P/L because of the long option that With spreads, it’s important to realize that options will be exercised if they are ITM
defines our risk. If we see profit on the short option, we will see losses on the and held through expiration. If one strike is ITM and the other moves OTM, close
long option and vice versa. For this reason, we should expect to be in spread the trade prior to expiration to avoid unwanted shares.
trades longer than naked options to reach profit targets.

13
 OPTIONS STRATEGY

A bearish back-ratio spread, where we are buying two ITM puts and selling one ATM put to remove all extrinsic value
and achieve 100 negative deltas. This strategy acts like a married call, since the most we can lose is the debit paid,

PUT ZEBRA and we have 100 shares of short stock profit potential.

DIRECTIONAL ASSUMPTION IV ENVIRONMENT DAYS TO EXPIRATION PROBABILITY OF PROFIT

Bearish Any Any 50%

SETUP EXAMPLE

1 Buy 2 ITM puts With XYZ stock at

$100, we may buy
two of the 105 puts
and sell one 100
105 P P
P strike put for a debit
with no extrinsic
STOCK PRICE
P value.

100 P
P
MAX PROFIT
Unlimited
DELTA
Sell 1 ATM put (to remove
2 Short / Dynamic
MAX LOSS
all extrinsic value) Debit Paid
VEGA
PROFIT TARGET Flat
25% of Debit Paid
THETA
BREAKEVEN Flat
Short Put Strike - Any Extrinsic Value Paid
GAMMA
Dynamic

TASTYLIVE APPROACH

HOW THE TRADE WORKS

NOT IDEAL
The stock price moves up. The synthetic short stock position will
lose value at almost the same rate as being short 100 shares of
stock, but losses will taper off above the long put strikes, since the
most you can lose is the debit paid for the trade.
P
P

P P
P

P
IDEAL
DEFENSIVE TACTICS
The stock price moves down. This is a synthetic short stock position that acts like a married call, where
you have 100 short shares of downside profit potential with limited risk above your long put strikes. In an effort to reduce the cost of the trade, we can roll
Unlike a married call, the put ZEBRA gives you defined risk without having to pay extrinsic value for the the short put up a few strikes if the stock rallies. This will
protection (if set up with zero extrinsic value on entry). decrease the short delta amount on a selloff, but if that
never happens, we reduce the overall debit paid on the
trade by rolling the put up.

VOLATILITY
IF VOLATILITY EXPANDS HIGH IV

The trade could be profitable if this is paired with a bearish move in the stock price. BASELINE
LOW IV

IF VOLATILITY CONTRACTS
This trade will likely be unaffected as we start with zero extrinsic value, unless this is paired with
a bullish move in the stock price, which could result in losses.

EXPIRATION
IF OTM AT EXPIRATION

P We will realize max loss on the trade, which

is the debit paid up front.

ORIG
P

P
IF ITM AT EXPIRATION IF PARTIALLY ITM AT EXPIRATION
We close the trade for a profit. We close the trade and restructure in a later cycle if we want to stay in. We want to avoid
assignment by closing the trade prior to expiration.

TAKEAWAYS
This can be a great short stock replacement strategy with limited risk if you’re Long term cycles & high IV products will be more expensive trades on entry. Short
directionally correct. The risk profile for a put zebra is similar to a married call, term cycles and low IV products will be cheaper trades on entry. We still need the
since our risk is capped at the debit paid for the spread. directional move to be profitable.

14
 OPTIONS STRATEGY

POOR MAN’S
A bearish synthetic covered put strategy that consists of an ITM long-term put to replicate 100 shares of short stock,
with an ATM/OTM short put in a near-term cycle to reduce cost basis. Net debit should not exceed width between
strikes.

COVERED PUT DIRECTIONAL ASSUMPTION

Bearish
IV ENVIRONMENT
Low
DAYS TO EXPIRATION
45 to 60
PROBABILITY OF PROFIT
50% to 60%

SETUP EXAMPLE

Buy an ITM put in a long- With XYZ stock at 110 P

1 term expiration cycle $100, we may buy
the 110 put in a
long-term expiration
+ TIME
and sell the 95
STOCK PRICE
P put in a near-term
expiration.

P
- TIME
2
Sell an OTM put in a near-
term expiration cycle

MAX PROFIT 100

Distance Between Strikes - Debit Paid +
Estimated Extrinsic Value in Long Option DELTA
Short
MAX LOSS
Debit Paid VEGA
Long
PROFIT TARGET
50% of Estimated Max Profit THETA
95 P
Flat
BREAKEVEN
GAMMA
Long Put Strike - Debit Paid
Dynamic

TASTYLIVE APPROACH

HOW THE TRADE WORKS

NOT IDEAL
The stock goes up. This results in losses on the long put you own,
although the short put will lose value and hedge the loss on the long
put, and you would not lose as much as being short 100 shares of
stock if there is a big rally.

P
+ TIME

P DEFENSIVE TACTICS
P

If the short put loses value, we can roll it out in

time to add extrinsic value to the trade, further
P
- TIME
reducing the cost basis on the position. We can
also move the put strike up in the same cycle to
achieve the same cost basis reduction result, or a
combination of rolling out in time and down a few
strikes. Avoid rolling the put above your breakeven
IDEAL on the trade overall to ensure potential profit if the
The stock moves down to the short put strike by the expiration of the contract. This stock sells off.
results in max extrinsic value collected from the short put, as well as max value gained
on the long put option that acts as a synthetic short stock position, plus any remaining
extrinsic value in the long option as well.

VOLATILITY IF VOLATILITY EXPANDS HIGH IV

The long put may appreciate in value to a greater degree than the short put and the trade BASELINE

may become profitable, especially if this is paired with a bearish move. LOW IV

IF VOLATILITY CONTRACTS
The long put may decrease in value to a greater degree than the short put, especially
if this is paired with a bullish move. We typically hold if this is the case, or close if our
assumption has changed.

EXPIRATION
IF OTM AT EXPIRATION
We will realize max loss on the trade, which is the debit
paid up front.
+ TIME

P
- TIME
ORIG
IF ITM AT EXPIRATION
The trade will be at max profit - we close the
trade.

TAKEAWAYS
Make sure the debit paid is no more than 75% the width of the strikes. If The idea here is to buy a long-term low volatility contract and take advantage of
you pay a debit higher than the width of the strikes and there is a huge heightened IV in the front-month by placing our short contract there. This setup
move where the spread moves ITM, you can lose money as the strikes lose can be very efficient for products with pending news, or big realized movements
extrinsic value and start to trade with pure intrinsic value. that pump up the near-term IV.

15
 OPTIONS STRATEGY

PUT CALENDAR
A neutral, defined risk trade where we are betting on an increase in IV while the stock stays near our strikes, or for the
stock to stay stagnant and our short premium to decay faster than our long premium.

SPREAD DIRECTIONAL ASSUMPTION

Bearish
IV ENVIRONMENT
Low
DAYS TO EXPIRATION
45
PROBABILITY OF PROFIT
N/A

SETUP Buy put in a long-term

EXAMPLE

1 expiration cycle With XYZ stock

at $100, we may
+ TIME
buy the 95 put in a
P long-term expiration
and sell the 95
put in a near-term

2 Sell put in a near-term

expiration cycle P
- TIME
STOCK PRICE
expiration.

100
MAX PROFIT
Variable
DELTA
MAX LOSS Short
Debit Paid
VEGA
95 P P
PROFIT TARGET Long
10-25% of Debit Paid
THETA
BREAKEVEN Short
Variable
GAMMA
Dynamic

TASTYLIVE APPROACH

HOW THE TRADE WORKS NOT IDEAL

The stock goes well beyond the put calendar strikes in either direction. This will result
in the options losing their extrinsic value, which is what you paid for the trade. Intrinsic
value is completely offset, resulting in a loss. This is an extrinsic value trade.

+ TIME

P
P

P
- TIME
P

DEFENSIVE TACTICS
If the short put option loses a lot of
value, we can roll it out in time closer
IDEAL to the long put option’s expiration.
This will result in a reduction in our
The stock trickles down to the put calendar strikes over time. This will result in an
net debit and max loss, but it will
expansion in the value of the long put option with a contraction in value of the near-term
desensitize the trade’s ability to
short put option, resulting in a net profit.
appreciate in value with the short
option now closer to the long option’s
expiration.

VOLATILITY
IF VOLATILITY EXPANDS HIGH IV
BASELINE
The put calendar will likely see a profit, especially if this is paired with a bearish move in
LOW IV
the stock price.

IF VOLATILITY CONTRACTS
The put calendar will likely see losses, especially if this is paired with a bullish move
moving the strikes further OTM.

IF OTM AT EXPIRATION
EXPIRATION The short put will expire worthless, and you can hold the long put or
roll the short put into a new expiration to reduce cost basis further.
+ TIME

P
- TIME
ORIG

IF ITM AT EXPIRATION IF ATM AT EXPIRATION

The short put will convert to 100 shares of stock. Your long put As time passes, the short option will decay faster than the long option, and
still protects your risk on the shares, but buying power will increase ultimately expire worthless. This is the ideal spot for the stock to be and will have
dramatically. Close or roll the short put to avoid this. the highest potential profit at this point. The value of the spread being the decay
in the short put option plus the remaining extrinsic value in the long put.

TAKEAWAYS
This strategy is typically not one we will hold to expiration, and we temper This is a short-term, vol expansion trade where we are purely trading the
our profit target because the spread cannot go too far ITM or OTM. extrinsic value and IV spread between the short front-month option and the
long back-month option. For this reason, we look for a quick exit if we see
profitability and a move towards our spread.

16
 OPTIONS STRATEGY

Symmetrical long put spread and short put spread that share the same short strikes. This is a low probability trade

PUT BUTTERFLY
because we pay for it up front and need the stock to be within our strikes at expiration.

DIRECTIONAL ASSUMPTION IV ENVIRONMENT DAYS TO EXPIRATION PROBABILITY OF PROFIT

Bearish Any 15 to 45 20% to 40%

SETUP Buy further OTM put for

EXAMPLE

3 equidistant spreads 1 Buy an ATM/OTM put

With XYZ stock at
$100, we may buy
the 100 put, sell two
P P of the 95 puts, and
buy one 90 put for a
small debit.

P STOCK PRICE

2
P
Sell 2 further OTM puts 100 P
MAX PROFIT
Width of Long Spread - Debit Paid
DELTA
MAX LOSS Short / Dynamic
Debit Paid
VEGA
95 P P
PROFIT TARGET Long
25% of Long Spread Width
THETA
BREAKEVEN Short
Long Put Strike - Debit Paid
GAMMA 90 P
Dynamic

TASTYLIVE APPROACH

HOW THE TRADE WORKS

IDEAL
The stock is between our strikes at expiration and we sell out of the butterfly for a
higher amount than we bought it for.

P P

P
P P
P P
DEFENSIVE TACTICS
P
If the long spread is ITM and near
NOT IDEAL max value, we sell out of it to retain
The spread is completely ITM or OTM and we realize max loss of the that value and either hold the credit
debit paid up front. spread, or manipulate the trade into
something else like an iron condor.

VOLATILITY
IF VOLATILITY EXPANDS HIGH IV
BASELINE
This trade will likely be unaffected - narrow defined risk trades do not have too much
LOW IV
vega exposure.

IF VOLATILITY CONTRACTS
This trade will likely be unaffected - narrow defined risk trades do not have too much vega
exposure.

IF PARTIALLY ITM AT EXPIRATION

EXPIRATION We look to sell the butterfly for a profit at expiration.
We avoid holding through expiration as this can result
in unwanted shares.

P P

ORIG
P
P
IF ITM AT EXPIRATION IF OTM AT EXPIRATION
We close the trade for max loss to avoid assignment. We close the trade for max loss to avoid assignment.

TAKEAWAYS
These trades are low probability because the range of success is so small The less time we have to expiration, the more we can expect to get out of
relative to the normal stock price movement for the cycle. We like to roll a butterfly if the stock price moves through it. Too much extrinsic value will
into equidistant butterflies from broken wing butterflies for this reason, as prevent the trade from moving much at all.
opposed to starting with them.

17
 OPTIONS STRATEGY

REVERSE BIG
A bearish position that is constructed by selling an ATM short call combined with an ATM short put spread. The total
credit received should be greater than the width of the put spread to remove downside risk entirely.

LIZARD DIRECTIONAL ASSUMPTION

Bearish
IV ENVIRONMENT
High
DAYS TO EXPIRATION
45
PROBABILITY OF PROFIT
60% to 80%

EXAMPLE
SETUP
Sell an ATM put credit spread with
2 the same short strike as the call With XYZ stock at
$100, we may sell
the 100 call and
P STOCK PRICE
sell the 100/95 put
spread for a credit
over $5.00.

1 Sell an ATM call P

C
MAX PROFIT 100 P C
Credit Received
DELTA
MAX LOSS Short
Unlimited
VEGA
PROFIT TARGET Short
25% Max Profit
THETA 95 P
BREAKEVEN Long
Short Call Strike - Credit Received
GAMMA
Short

TASTYLIVE APPROACH

IDEAL
HOW THE TRADE WORKS The stock stays between our breakeven range. There is no risk to the downside if our net credit is
greater than the width of the put credit spread, so the trade is profitable if the stock is below our
short call breakeven at expiration.

P
NOT IDEAL C P
The stock goes up. We have a naked short call, so if the stock increases in price above our short call
strike, we take on intrinsic value losses equivalent to 100 shares of stock, less the credit received C C P
C
from selling the big lizard up front. DEFENSIVE TACTICS
The position can be rolled out in time if
the stock rallies above the short call. We
can also consider closing the short put
spread and rolling just the short call to get
a more directionally short position.

VOLATILITY
IF VOLATILITY EXPANDS HIGH IV
BASELINE
We may hold - this may result in an extrinsic value loss, but extrinsic value will always go to zero by
LOW IV
expiration.

IF VOLATILITY CONTRACTS
We may have a winning trade - if we are happy with our profit target we can close the trade.

IF ITM AT EXPIRATION

EXPIRATION If the naked call is ITM at expiration, it has to be closed

or rolled out in time, otherwise it will turn into short stock.
If the put spread is fully ITM at expiration, it will get
exercised/assigned and result in no position. We close or
roll prior to expiration to avoid unwanted shares.

P ORIG

P
IF ITM/ATM AT EXPIRATION
Since the short options are placed at the same strike, one side of the position will always be ITM. To avoid C
taking potential assignment of shares, we close out the position which would be profitable if the short put
spread is ITM or if the stock is within our breakeven to the call side.

TAKEAWAYS
This trade will always be ITM at any time, so we temper our profit target to 25%, Ensure the credit received is wider than the width of the put spread, so that there
since even at expiration, one of these strikes will hold intrinsic value. is no risk to the downside. The reverse big lizard put spread will be much wider
than the reverse jade lizard put spread since the short strikes are ATM.

18
 OPTIONS STRATEGY

PUT FRONT-
Omnidirectional, undefined risk trade consisting of a long put spread with an extra short put to finance the trade and
receive a net credit overall. No risk to the upside, but max profit at the short strike. Also known as a put ratio spread.

RATIO SPREAD DIRECTIONAL ASSUMPTION

Omnidirectional
IV ENVIRONMENT
High
DAYS TO EXPIRATION
15 to 45
PROBABILITY OF PROFIT
60% to 80%

EXAMPLE
SETUP 1 Buy an ATM or OTM put

With XYZ stock at

$100, we may buy 100
the 95 put and sell
P STOCK PRICE
two of the 90 puts
for a small credit.

P 2 Sell two further OTM puts

95 P
for a net credit

P
MAX PROFIT
Width of Long Spread + Credit Received
DELTA
90 P P
MAX LOSS Long / Dynamic
Breakeven Price x 100
VEGA
PROFIT TARGET Short
50% of Credit Received or 25% of Long Spread Width
THETA
BREAKEVEN Long
Short Put Strike - (Long Spread Width +
GAMMA
Credit Received)
Dynamic

TASTYLIVE APPROACH

HOW THE TRADE WORKS

IDEAL
The stock moves towards the short strikes at expiration. Put ratio spreads are omnidirectional
trades, so they can be profitable from an increase in the stock price or a move down towards the
short strikes. Max profit occurs when the long put spread is fully ITM at the short strike, so ideally
the stock moves towards the short strikes near expiration.

P
P

P
P
P
DEFENSIVE TACTICS

P
The naked put portion of the put ratio
spread is where the risk lies. Rolling the
NOT IDEAL naked put out in time for a credit will add
The stock moves well below the short strikes and below our breakevens. This extrinsic value and more time without
results in the stock passing through our profit zone and into our loss zone, adding additional risk. The long put spread
because we have a short put which has undefined risk. would be near max value if we’re seeing
losses overall. The long put spread can be
closed for an additional credit against the
remaining short put.

IF VOLATILITY EXPANDS
VOLATILITY We may hold - this may result in an extrinsic value loss if paired with a bearish move in the stock
HIGH IV
price. However, extrinsic value will always go to zero by expiration.
BASELINE
LOW IV

IF VOLATILITY CONTRACTS
Our spread could lose value if volatility contraction is paired with a bullish stock price move. We can
close for a profit, or we can look to purchase an OTM put to create a symmetrical butterfly. If we can
buy the put for less than the credit received up front, we lock in a small profit and remove buying
power and initial risk from the trade.

EXPIRATION
IF PARTIALLY ITM AT EXPIRATION
We can likely sell out of the long put spread for some sort of profit. We consider closing the
entire trade if this is the case.

P ORIG
IF ITM AT EXPIRATION

We close the long put spread to secure value, and either P IF OTM AT EXPIRATION
All strikes will expire worthless and we keep the
roll the remaining short put out in time or consider closing
credit received on entry as profit.
the trade overall.

TAKEAWAYS
For us to see profits on the long spread if it goes ITM, we need extrinsic value to For earnings trade ratio spreads, we typically go into the weekly cycle which is
be close to zero so we can realize the pure intrinsic value of the spread. If we see atypical - this is because we want the stock to move towards our spread, and we
a move ITM too soon prior to expiration, we can see extrinsic value losses, even if need extrinsic value to be close to zero to see profits on the long spread if we get
we’re in our max profit zone. For this reason, we may hold ratio spreads closer to the desired stock price move in our favor.
expiration, since we pass through our profit zone before we hit our loss zone.
19
 OPTIONS STRATEGY

CALL FRONT-
Omnidirectional, undefined risk trade consisting of a long call spread with an extra short call to finance the trade and
receive a net credit overall. No risk to the downside, but max profit at the short strike to the upside. Also known as a
call ratio spread.

RATIO SPREAD DIRECTIONAL ASSUMPTION

Omnidirectional
IV ENVIRONMENT
High
DAYS TO EXPIRATION
15 to 45
PROBABILITY OF PROFIT
60% to 80%

EXAMPLE
SETUP 1 Buy an ATM or OTM call

With XYZ stock at

$100, we may buy
the 105 call and sell
C two of the 110 calls
for a small credit.

STOCK PRICE C Sell two further OTM calls

2 for a net credit 110 C C
C
MAX PROFIT
Width of Long Spread + Credit Received

MAX LOSS
DELTA
Unlimited
Short / Dynamic 105 C
PROFIT TARGET
VEGA
50% of Credit Received or 25% of Long Spread Width Short
BREAKEVEN THETA
Short Call Strike + (Long Spread Width + Long
Credit Received)
GAMMA
100
Dynamic

TASTYLIVE APPROACH

HOW THE TRADE WORKS IDEAL

The stock moves towards the short strikes at expiration. Call ratio spreads are
omnidirectional trades, so they can be profitable from a decrease in the stock price or a
move up towards the short strikes. Max profit occurs when the long call spread is fully ITM
at the short strike, so ideally the stock moves towards the short strike near expiration.

C C

C
DEFENSIVE TACTICS
C
C
The naked call portion of the call ratio
NOT IDEAL spread is where the risk lies. Rolling
the naked call out in time for a credit
The stock moves well above the short strikes and above our breakevens.
will add extrinsic value and more time
This results in the stock passing through our profit zone and into our loss
without adding additional risk. The long
zone, because our short call has undefined risk.
call spread would be near max value if
we’re seeing losses overall, and can be
closed for an additional credit against the
remaining short call.

IF VOLATILITY EXPANDS
VOLATILITY Our spread could be losing value if volatility expansion is paired with a bearish stock price move. We
can close for a profit, or we can look to purchase an OTM call to create a symmetrical butterfly. If we
HIGH IV
can buy the call for less than the credit received up front, we lock in a small profit and remove buying
BASELINE
power and initial risk from the trade.
LOW IV

IF VOLATILITY CONTRACTS
We may hold - this may result in an extrinsic value loss if volatility contraction is paired with a bullish
move in the stock price, but extrinsic value will always go to zero by expiration.

IF PARTIALLY ITM AT EXPIRATION

EXPIRATION We can likely sell out of the long call spread for some sort of profit. We consider closing the
entire trade if this is the case.

ORIG C
IF OTM AT EXPIRATION
All strikes will expire worthless and we keep the credit
C IF ITM AT EXPIRATION
We close the long call spread to secure value, and either
received on entry as profit. roll the remaining short call out in time or consider
closing the trade overall.

TAKEAWAYS
For us to see profits on the long spread if it goes ITM, we need extrinsic value to For earnings trade ratio spreads, we typically go into the weekly cycle which is
be close to zero so we can realize the pure intrinsic value of the spread. If we see atypical - this is because we want the stock to move towards our spread, and we
a move ITM too soon prior to expiration, we can see extrinsic value losses, even if need extrinsic value to be close to zero to see profits on the long spread if we get
we’re in our max profit zone. For this reason, we may hold ratio spreads closer to the desired stock price move in our favor.
expiration, since we pass through our profit zone before we hit our loss zone.
20
 OPTIONS STRATEGY

PUT BROKEN
Omnidirectional, defined risk trade consisting of a long put spread with a wider OTM short put spread to finance the
trade and receive a net credit overall. No risk to the upside, but max profit at the short strikes.

WING BUTTERFLY DIRECTIONAL ASSUMPTION

Omnidirectional
IV ENVIRONMENT
High
DAYS TO EXPIRATION
15 to 45
PROBABILITY OF PROFIT
60% to 80%

EXAMPLE
SETUP 3 Buy much further OTM put

With XYZ stock at

2 Sell two further OTM puts $100, we may buy
the 100 put, sell two
P P of the 97 puts and
buy one 91 put for a
small credit.

P STOCK PRICE 100 P

P 1 Buy ATM/OTM put
97 P P
MAX PROFIT
Width of Long Spread + Credit Received
DELTA

MAX LOSS
Long / Dynamic
Short Spread - Long Spread - Credit Received VEGA
Short
PROFIT TARGET
50% of Credit Received or 25% of Long Spread Width THETA
91 P
Long
BREAKEVEN
Short Put Strike - (Long Spread Width + Credit Received) GAMMA
Dynamic

TASTYLIVE APPROACH

HOW THE TRADE WORKS

IDEAL
Put broken wing butterflies are similar to put ratio spreads, but are defined
risk. Max profit occurs at the short strikes, where the long put spread
would realize max value and the short put spread would be worthless at
expiration. The spread has no risk to the upside if entered for a credit, so
the position can also be profitable with an upside move in the stock.
P P
P P P
P
DEFENSIVE TACTICS

P If the long spread is ITM and near max

value, we sell out of it to retain that value
NOT IDEAL and either hold the credit spread, or adjust
the trade into something else like an iron
P If the spread moves fully ITM at expiration, you will realize max loss on
the trade. Additionally, if the stock price moves too quickly towards the
condor.
spread, you can see an extrinsic value loss on the trade since the bulk of
the potential profit on a trade like this requires extrinsic value to be low.
For that reason, we look to remove risk if the spread moves further OTM
by rolling into a symmetrical butterfly for a debit that’s less than the credit
received upon entry.

VOLATILITY
IF VOLATILITY EXPANDS HIGH IV

This trade doesn’t have a ton of exposure to vega since it’s defined risk, but this could result in an BASELINE
extrinsic value marked loss. LOW IV

IF VOLATILITY CONTRACTS
This trade doesn’t have a ton of exposure to vega since it’s defined risk, but this may make it easier to
‘‘fly off’’ the risk by rolling into a symmetrical butterfly for a debit that’s less than the credit received
upon entry.

EXPIRATION IF PARTIALLY ITM AT EXPIRATION

We can sell out of the spread for a profit if we’re in our profit zone, since our long spread will
increase in value and the short spread will decrease in value if it is OTM.

P P

P ORIG

IF ITM AT EXPIRATION P IF OTM AT EXPIRATION

The trade would be at max loss if it is completely ITM. The strikes would expire worthless and we can keep our credit
We close the trade to avoid assignment and move on. collected up front as profit.

TAKEAWAYS
Put Broken Wing Butterflies are frequently used in products that have put skew, Broken Wing Butterflies don’t appreciate in value too much until closer to
because we can make them wider or collect a larger credit up front. expiration when extrinsic value gets closer to zero, so our initial goal with BWBs is
to remove risk by rolling into a symmetrical butterfly if the spread moves further
OTM. If we can do this for a debit less than the initial credit received, we lock in a
small profit and remove initial risk from the trade.
21
 OPTIONS STRATEGY

CALL BROKEN
Omnidirectional, defined risk trade consisting of a long call spread with a wider OTM short call spread to finance the
trade and receive a net credit overall. No risk to the downside, but max profit at the short strikes.

WING BUTTERFLY DIRECTIONAL ASSUMPTION

Omnidirectional
IV ENVIRONMENT
High
DAYS TO EXPIRATION
15 to 45
PROBABILITY OF PROFIT
60% to 80%

EXAMPLE
SETUP 1 Buy ATM/OTM call
With XYZ stock at
2 Sell two further OTM calls $100, we may buy 109 C
the 100 call, sell two
C C of the 103 calls, and
buy one 109 call for
a small credit.

STOCK PRICE
C 3 Buy much further OTM call
103 C C
C
MAX PROFIT 100 C
Width of Long Spread + Credit Received
DELTA

MAX LOSS
Short / Dynamic
Short Spread - Long Spread - Credit Received VEGA
Short
PROFIT TARGET
50% of Credit Received or 25% of Long Spread Width THETA
Long
BREAKEVEN
Short Call Strike + (Long Spread Width + Credit Received) GAMMA
Dynamic

TASTYLIVE APPROACH

HOW THE TRADE WORKS

IDEAL
Call broken wing butterflies are similar to call ratio spreads, but are defined risk. Max profit would occur at
the short strikes, where the long call spread would realize max value and the short call spread would be
worthless at expiration. The spread has no risk to the downside if routed for a credit so the position can
also be profitable with a downside move in the stock.

C C

C C

C
C

DEFENSIVE TACTICS
C
NOT IDEAL C
If the long spread is ITM and near max
If the spread moves fully ITM at expiration, you will realize max loss on the value, we sell out of it to retain that
trade. Additionally, if the stock price moves too quickly towards the spread, you value and either hold the credit spread,
can see an extrinsic value loss on the trade since the bulk of the potential profit or manipulate the trade into something
on a trade like this requires extrinsic value to be low. For that reason, we look else like an iron condor.
to remove risk if the spread moves further OTM by rolling into a symmetrical
butterfly for a debit less than the credit received up front.

VOLATILITY
IF VOLATILITY EXPANDS HIGH IV

This trade doesn’t have a ton of exposure to vega since it’s defined risk, but this could result in an BASELINE
extrinsic value marked loss. LOW IV

IF VOLATILITY CONTRACTS
This trade doesn’t have a ton of exposure to vega since it’s defined risk, but this may make it easier to
‘‘fly off’’ the risk by rolling into symmetrical butterfly for a debit less than the credit received up front.

EXPIRATION IF ITM AT EXPIRATION

The trade would be at max loss if it is completely
ITM. We close the trade to avoid assignment and
move on.

C C

ORIG C
IF OTM AT EXPIRATION
C
The strikes would expire worthless and we can keep our
credit collected up front as profit. IF PARTIALLY ITM AT EXPIRATION
We can sell out of the spread for a profit if we’re in our
profit zone, since our long spread will increase in value
and the short spread will decrease in value if it is OTM.
TAKEAWAYS
Call Broken Wing Butterflies are frequently used in products that have call skew, Broken Wing Butterflies don’t appreciate in value too much until closer to
because we can make them wider or collect a larger credit up front. expiration when extrinsic value gets closer to zero, so our initial goal with BWBs is
to remove risk by rolling into a symmetrical butterfly if the spread moves further
OTM. If we can do this for a debit less than the initial credit received, we lock in a
small profit and remove initial risk from the trade.
22
 OPTIONS STRATEGY

CALL BROKEN
A disconnected Call Broken Wing Butterfly where we separate the long and short call spreads for a wide max profit
space to the upside, but still route for a credit to keep probability of success high.

HEART BUTTERFLY DIRECTIONAL ASSUMPTION

Omnidirectional
IV ENVIRONMENT
High
DAYS TO EXPIRATION
45
PROBABILITY OF PROFIT
60% to 80%

SETUP 1 Buy an OTM call spread

EXAMPLE

114 C
With XYZ stock at
$100, we may buy
the 102/104 call
C C spread and sell the 110 C
110/114 call spread
for a small credit.

STOCK PRICE C C
Sell a further, wider OTM call 104 C
2 spread to route trade for a credit
102 C
MAX PROFIT
Width of Long Spread + Credit Received 100
DELTA
MAX LOSS Flat / Dynamic
Short Spread - Long Spread - Credit Received
VEGA
PROFIT TARGET Short
25%-50% of Long Spread Width
THETA
BREAKEVEN Long
Add Long Spread Width & Credit Recieved
GAMMA
to Short Call Strike
Dynamic

TASTYLIVE APPROACH

HOW THE TRADE WORKS

NOT IDEAL
The short call spread moves ITM at expiration, as that results in max loss.

C C

C C
C

P C
IDEAL
The long call spread moves ITM and the short call spread remains OTM at expiration. This DEFENSIVE TACTICS
results in max profit, as the long call spread appreciates to full value and the short call spread
We can sell out of our long call spread
expires worthless.
to retain value and roll the short call
spread out in time. We can use that
short call spread and turn the position
into an iron condor, or reverse jade
lizard, by adding a short put spread in
that new expiration.

VOLATILITY
HIGH IV
IF VOLATILITY EXPANDS
BASELINE
The trade will likely be unaffected - narrow spread trades have low exposure to greeks. LOW IV

IF VOLATILITY CONTRACTS
The trade will likely be unaffected - narrow spread trades have low exposure to greeks.

IF ITM AT EXPIRATION
If completely ITM at expiration, the trade will realize max loss. If just the long spread
is ITM and the short spread is OTM, the trade will be at max profit.
EXPIRATION

C C

ORIG C C

IF OTM AT EXPIRATION IF PARTIALLY ITM AT EXPIRATION

The trade will expire worthless and we keep the credit collected up We close the trade or roll it out in time to avoid assignment - we don’t want to have
front as profit. unwanted shares if one option expires ITM and the other OTM in a spread.

TAKEAWAYS
We give up almost all credit up front on this trade so that we can create If there is call skew, where OTM calls are trading for a higher premium than
a large distance between the long and short spread. This means we may equidistant OTM puts, the distance between the long and short spread can
have to hold closer to expiration to see decent profitability, and we need a be maximized and we can still route the trade for a credit. For this reason, we
directional move so the long spread moves ATM/ITM. like to place these trades on the skewed side if it aligns with our directional
assumption.
23
 OPTIONS STRATEGY

PUT BROKEN
A disconnected Put Broken Wing Butterfly where we separate the long and short put spreads for a wide max profit
space to the downside, but still route for a credit to keep probability of success high.

HEART BUTTERFLY DIRECTIONAL ASSUMPTION

Omnidirectional
IV ENVIRONMENT
High
DAYS TO EXPIRATION
45
PROBABILITY OF PROFIT
60% to 80%

SETUP EXAMPLE

1 Buy an OTM put spread

With XYZ stock
at $100, we may
buy the 98/96 put
P P spread and sell the
90/86 put spread
for a small credit.

P P STOCK PRICE
100
98 P
2 Sell a further, wider OTM put MAX PROFIT 96 P
spread to route trade for a credit Width of Long Spread + Credit Received
DELTA
MAX LOSS Flat / Dynamic
Short Spread - Long Spread - Credit Received
VEGA
PROFIT TARGET Short
25%-50% of Long Spread Width
THETA
90 P
BREAKEVEN
Long
Subtract Long Spread Width & Credit GAMMA
Received from Short Put Strike Dynamic 86 P

TASTYLIVE APPROACH

HOW THE TRADE WORKS IDEAL

The long put spread moves ITM and the short put spread remains OTM at expiration. This
results in max profit, as the long put spread appreciates to full value and the short put
spread expires worthless.

P P

P P
P

DEFENSIVE TACTICS
NOT IDEAL
We can sell out of our long put spread
The short put spread moves ITM at expiration, as that results in max loss. to retain value and roll the short put
spread out in time. We can use that
short put spread and turn the position
into an iron condor, or jade lizard, by
adding a short call spread in that new
expiration.

VOLATILITY
HIGH IV
IF VOLATILITY EXPANDS
BASELINE
The trade will likely be unaffected - narrow spread trades have low exposure to greeks. LOW IV

IF VOLATILITY CONTRACTS
The trade will likely be unaffected - narrow spread trades have low exposure to greeks.

IF OTM AT EXPIRATION
The trade will expire worthless and we keep the credit collected up front as profit.
EXPIRATION

P P

P P ORIG

IF ITM AT EXPIRATION IF PARTIALLY ITM AT EXPIRATION

If completely ITM at expiration, the trade will realize max loss. If just the long We close the trade or roll it out in time to avoid assignment - we don’t want to have
spread is ITM and the short spread is OTM, the trade will be at max profit. unwanted shares if one option expires ITM and the other OTM in a spread.

TAKEAWAYS
We give up almost all credit up front on this trade so that we can create If there is put skew, where OTM puts are trading for a higher premium than
a large distance between the long and short spread. This means we may equidistant OTM calls, the distance between the long and short spread can
have to hold closer to expiration to see decent profitability, and we need a be maximized and we can still route the trade for a credit. For this reason, we
directional move so the long spread moves ATM/ITM. like to place these trades on the skewed side if it aligns with our directional
assumption.
24
 OPTIONS STRATEGY

Neutral, undefined risk strategy consisting of an OTM short put and an OTM short call. We want the stock to stay

SHORT STRANGLE
between our strikes through expiration so the options expire worthless and we keep the credit received up front as
profit.

DIRECTIONAL ASSUMPTION IV ENVIRONMENT DAYS TO EXPIRATION PROBABILITY OF PROFIT

Neutral High 45 60% to 80%

SETUP EXAMPLE

With XYZ stock at

1 Sell an OTM put 2 Sell an OTM call
$100, we might sell 110 C
STOCK PRICE the 90 put and 110
call. We do not aim
for a specific target
credit, but trust

P C
the premium will
be sufficient if the
market is liquid.

100
MAX PROFIT
Credit Received
DELTA
MAX LOSS Flat
Unlimited
VEGA
PROFIT TARGET Short
50% of Max Profit
THETA
BREAKEVEN Long
Put Strike - Credit Received
Call Strike + Credit Received
GAMMA 90 P
Short

TASTYLIVE APPROACH

HOW THE TRADE WORKS IDEAL

The stock stays between our strikes as time passes. This
results in extrinsic value decay on both sides and the trade can
be bought back for a profit over time.

P C
P C C

DEFENSIVE TACTICS
Strangles are undefined risk trades and they can be
adjusted very easily. If the stock moves towards or past
one of our strikes, we can roll the other ‘‘untested’’ side
closer to the ‘‘tested’’ side to pick up additional credit and
NOT IDEAL reduce the delta of the position. We can also roll both
The stock moves outside of one of our strikes. The trade now moves from neutral to strikes out in time to add more credit, or a combination
directional. We can start to see losses as the ‘‘tested’’ side increases in value because the of both of these tactics. If the trade is small enough upon
stock price has moved closer to that side. entry, it enables us to adjust perpetually, so that we can
pick up a large credit that offsets our breakevens well
beyond our strikes.

VOLATILITY IF VOLATILITY EXPANDS

HIGH IV
Extrinsic value may have increased - we could see a marked extrinsic value loss, but our BASELINE
strikes could still be OTM. We hold in this case as these options will expire worthless if LOW IV
the stock stays between our strikes.

IF VOLATILITY CONTRACTS
Extrinsic value will likely contract - in this case, we close the trade if it’s net profitable at a
percentage we’re happy with.

IF OTM AT EXPIRATION
EXPIRATION Both strikes will expire worthless and we will realize max profit.

P ORIG C

IF ITM AT EXPIRATION
We can roll the strikes out in time to add credit and duration to the trade, or
close the trade if our assumption has changed.

TAKEAWAYS
As the market moves, we may see profitability on one side of a strangle and Strangles take risk on both sides of the market, so being tested is pretty
losses on the other. Realize that this is a neutral strategy because the short normal. We need to trade small so that we can roll losers out in time and
put hedges the short call and vice versa. adjust the strikes if we want to, as time & extrinsic value credit are our
biggest assets in this type of trade.

25
 OPTIONS STRATEGY

Neutral, undefined risk strategy consisting of an ATM short put and an ATM short call. We want the stock to stay

SHORT STRADDLE
between our breakeven points through expiration.

DIRECTIONAL ASSUMPTION IV ENVIRONMENT DAYS TO EXPIRATION PROBABILITY OF PROFIT

Neutral High 45 50% to 60%

SETUP EXAMPLE

With XYZ stock at

1 Sell an ATM put
$100, we may sell
STOCK PRICE the 100 put and
call. We do not aim
for a specific target
credit, but trust

P
the premium will
be sufficient if the
market is liquid.

2 Sell an ATM call C

100 P C
MAX PROFIT
Credit Received
DELTA
MAX LOSS Flat
Unlimited
VEGA
PROFIT TARGET Short
25% of Max Profit
THETA
BREAKEVEN Long
Put Strike - Credit Received
GAMMA
Call Strike + Credit Received
Short

TASTYLIVE APPROACH

HOW THE TRADE WORKS IDEAL

The stock stays between our breakeven points as time passes.
This results in extrinsic value decay on both sides, and the
trade can be bought back for a profit over time.

P C
C P
C
DEFENSIVE TACTICS

P Straddles are undefined risk trades and they can be

adjusted very easily. If the stock moves towards or past
our breakeven point, we can roll the other ‘‘untested’’ side
C beyond the ‘‘tested’’ side (inversion) to pick up additional
credit and reduce the delta of the position. We can also
roll both strikes out in time to add more credit, or use a
combination of both of these tactics. If our trade is small
upon entry, it enables us to adjust perpetually. We can pick
NOT IDEAL up a large credit that offsets our breakevens well beyond
The stock moves outside of one of our breakeven points. The trade moves from neutral to our strikes.
directional if this happens, and we can start to see losses as the ‘’tested’’ side increases in
value as the stock price moves closer to that side.

VOLATILITY IF VOLATILITY EXPANDS

HIGH IV
Extrinsic value may have increased, and we could see a marked extrinsic value loss. BASELINE
However, the stock could still be within our breakeven points, so we should hold because LOW IV
extrinsic value will decay to zero as we approach expiration.

IF VOLATILITY CONTRACTS
We may be able to close the trade for a net profit if the stock has not moved much.
Straddles have strong vega exposure, so this could be ideal and we can close for a profit
if we see it.

IF OTM AT EXPIRATION
EXPIRATION This strategy will always have one strike that is ITM, so we have
to close the trade, or roll the trade prior to expiration to avoid
assignment of shares.
ORIG

P
C
IF ITM AT EXPIRATION
We can roll the strikes out in time to add credit and duration to the trade, or
close the trade if our assumption has changed.

TAKEAWAYS
Straddles will always have an ITM option, so we temper our profit target Typically, we reserve straddles for high IV & IVR stocks, so that our credit
expectations, since this is not a trade that will expire worthless in almost all collection is very high, and our breakevens are wide. This is not a strategy we
cases. We still focus on time and extrinsic value collection though, as that would deploy in a low IV environment.
boosts our breakeven prices well past our strikes over time.

26
 OPTIONS STRATEGY

Neutral, defined risk strategy consisting of an OTM put credit spread and OTM call credit spread, where we want the

IRON CONDOR
stock to stay between our short strikes through expiration. We aim to collect 1/3rd the width of the strikes.

DIRECTIONAL ASSUMPTION IV ENVIRONMENT DAYS TO EXPIRATION PROBABILITY OF PROFIT

Neutral High 45 60% to 80%

SETUP EXAMPLE

1 Sell an OTM put spread 2 Sell an OTM call spread

With XYZ stock 108 C
at $100, we may
sell the 95/92 put
P C spread and the
105/108 call spread
105 C
and look to collect

P STOCK PRICE C $1.00.

100
MAX PROFIT
Credit Received

MAX LOSS
DELTA
Widest Spread - Credit Received Flat
PROFIT TARGET VEGA
95 P
50% of Max Profit Short

BREAKEVEN THETA
Short Put Strike - Credit Long 92 P
Short Call Strike + Credit
GAMMA
Flat

TASTYLIVE APPROACH

HOW THE TRADE WORKS IDEAL

The stock stays between our strikes as time passes. This
results in extrinsic value decay on both sides and the trade can
be bought back for a profit over time.
P
C
C
C

P C DEFENSIVE TACTICS
Defensive management is limited with
defined risk credit trades, but we can roll

P
a spread out in time for a credit if it is not
C ITM yet. If one of our spreads begins to be
tested, we can roll it out in time. We can
also close or roll the untested side if we
want to extend duration and add credit to
the trade to reduce max loss.

NOT IDEAL
The stock moves outside of one of our credit spreads. This will go from a neutral to a
directional trade if this happens, and we can start to see losses as the ‘‘tested’’ side
increases in value as the stock price moves closer to that side.

VOLATILITY IF VOLATILITY EXPANDS

We may hold - this may result in an extrinsic value loss, but extrinsic value will always go to zero by HIGH IV
expiration. BASELINE
LOW IV

IF VOLATILITY CONTRACTS
Close for a winner if we reach our desired profit target and the stock is still between our strikes.

IF OTM AT EXPIRATION
EXPIRATION Close for profit to remove risk and secure the profit in the position.

P C

P ORIG C

IF ITM AT EXPIRATION
Close for a loss to avoid assignment fees and the stock moving between our
spread after hours, which could result in unwanted shares on Monday.

TAKEAWAYS
Be mindful of liquidity. With 4 legs to this trade, the most liquid products are best Select strikes that create a wide range of profitability while still collecting around
to reduce slippage. 1/3rd the width of the spread. Defensive management is limited, so the best
defense is a wide profit range up front.

27
 OPTIONS STRATEGY

DYNAMIC WIDTH Neutral, defined risk strategy consisting of an OTM put credit spread and OTM call credit spread. We want the stock to
stay between our strikes through expiration.

IRON CONDOR DIRECTIONAL ASSUMPTION

Neutral
IV ENVIRONMENT
High
DAYS TO EXPIRATION
45
PROBABILITY OF PROFIT
60% to 80%

SETUP EXAMPLE

1 Sell an OTM put spread 2 Sell an OTM call spread

With XYZ stock
at $100, we may 110 C
sell the 97/90 put
P C spread and the
107/110 call spread 107 C
and look to collect

P STOCK PRICE C $2.00 overall.

We aim to set
strikes so that the
short option deltas
match, and the long 100
option deltas match.
MAX PROFIT
Credit Received
DELTA 97 P
MAX LOSS Flat
Widest Spread - Credit Received
VEGA
PROFIT TARGET Short
50% of Max Profit
THETA
Long
BREAKEVEN
Short Put Strike - Credit Received GAMMA 90 P
Short Call Strike + Credit Received Flat

TASTYLIVE APPROACH

HOW THE TRADE WORKS IDEAL

The stock stays between our strikes as time passes. This
results in extrinsic value decay on both sides, and the trade can
be bought back for a profit over time.
P
C
C

P C
C
DEFENSIVE TACTICS
Defensive management is limited with
defined risk credit trades, but we can roll
P C a spread out in time for a credit if it is not
ITM yet. If one of our spreads begins to be
tested, we can roll it out in time. We can
also close or roll the untested side if we
want to extend duration and add credit to
the trade to reduce max loss.

NOT IDEAL
The stock moves outside of one of our credit spreads. The trade goes from neutral to
directional if this happens, and we can start to see losses as the ‘‘tested’’ side increases in
value as the stock price moves closer to that side.

VOLATILITY IF VOLATILITY EXPANDS

We may hold - this may result in an extrinsic value loss, but extrinsic value will always go to zero by HIGH IV
expiration. BASELINE
LOW IV

IF VOLATILITY CONTRACTS
Close for a winner if we reach our desired profit target and the stock is still between our strikes.

IF OTM AT EXPIRATION
EXPIRATION Close the position for profit which will also remove any expiration risk.

P C

P ORIG C

IF ITM AT EXPIRATION
Close for max loss to avoid assignment fees and the stock moving between
our spread after hours, which could result in unwanted shares on Monday.

TAKEAWAYS
If there is skew in the market, dynamic width iron condors will always have Select strikes that create a wide range of profitability while still collecting around
different spread widths on the call side and put side, so one side will have more 1/3rd the width of the spread. Defensive management is limited, so the best
risk than the other. This strategy will still operate like a normal iron condor, but it defense is a wide profit range up front.
will account for skew in the market.

28
 OPTIONS STRATEGY

Neutral, defined risk strategy consisting of an ATM put credit spread and ATM call credit spread. We want the stock to

IRON FLY
stay between our breakeven prices through expiration.

DIRECTIONAL ASSUMPTION IV ENVIRONMENT DAYS TO EXPIRATION PROBABILITY OF PROFIT

Neutral High 45 60% to 80%

SETUP 2 Buy an OTM put 3 Buy an OTM call

EXAMPLE

With XYZ stock at

$100, we may sell 110 C
the 100/90 put
P C
STOCK PRICE
spread and the
100/110 call spread
and look to collect

P
$5.00.

1 Sell a straddle

C
100 P C
MAX PROFIT
Credit Received
DELTA
MAX LOSS Flat
Widest Spread - Credit Received
VEGA
PROFIT TARGET Short
25% of Max Profit
THETA
BREAKEVEN Long
Short Put Strike - Credit Received
Short Call Strike + Credit Received
GAMMA 90 P
Flat

TASTYLIVE APPROACH

HOW THE TRADE WORKS IDEAL

The stock stays between our breakeven points as time passes.
This results in extrinsic value decay on both sides and the trade
can be bought back for a profit over time.

P C
P C
P P
C
C DEFENSIVE TACTICS
Iron flies are like a defined-risk straddle. Because of this,
management is limited compared to an undefined risk
trade. If one of the sides is completely ITM, it cannot be
NOT IDEAL rolled for a credit, so there is not much we can do with this
The stock moves outside of one of our breakeven points. The trade goes from neutral to trade if the stock moves outside of our long strikes without
directional if this happens. We can start to see losses as the ‘‘tested’’ side increases in manipulating risk.
value as the stock price moves closer to that side.

VOLATILITY IF VOLATILITY EXPANDS

HIGH IV
We may hold - this may result in an extrinsic value loss. However, if the stock is still BASELINE
within our breakeven points, we know that the trade can be profitable at expiration. LOW IV

IF VOLATILITY CONTRACTS
The extrinsic value may collapse to a point where we can buy the trade back for 25% of
max profit, which is our target.

EXPIRATION IF OTM AT EXPIRATION

This strategy will always have one strike that is ITM, so we
have to either close or roll the trade prior to expiration to avoid
assignment of shares.

P ORIG C

P
C
IF PARTIALLY ITM AT EXPIRATION
IF ITM AT EXPIRATION We can still see profitability if we are within our
breakeven ranges. We close the trade for a profit if this
If the spread is completely ITM at expiration, we can close the trade to is the case to avoid assignment.
avoid assignment and move on.

TAKEAWAYS
With spreads, it’s important to realize that options will be exercised if they Target risk:reward is 1:1 so that we do not have an impractical spread width.
are ITM and held through expiration. If one strike is ITM and the other moves Defensive management is limited, so we want to have a nice wide breakeven
OTM, close the trade prior to expiration to avoid unwanted shares. range.

29
 OPTIONS STRATEGY

Neutral-Bullish undefined risk credit trade where we’re betting against the stock moving below our strike price by the

SHORT NAKED PUT

expiration of our contract.

DIRECTIONAL ASSUMPTION IV ENVIRONMENT DAYS TO EXPIRATION PROBABILITY OF PROFIT

Neutral-Bullish High 45 60% to 80%

SETUP 1 Sell an OTM put

EXAMPLE

With XYZ stock at

$100, we might sell
a 95 strike put and
look to collect $1.00
in credit.

P STOCK PRICE

100

MAX PROFIT
Credit Received
DELTA
MAX LOSS
Put Strike x 100 - Credit Received
Long 95 P
VEGA
PROFIT TARGET Short
50% of Max Profit
THETA
BREAKEVEN Long
Put Strike - Credit Received
GAMMA
Short

TASTYLIVE APPROACH

HOW THE TRADE WORKS

IDEAL
The stock increases in value. As time passes, and if volatility
decreases, the extrinsic value of the put will decrease. As long as we
buy back the put for less than we sold it for, we lock in a profit.

P P

DEFENSIVE TACTICS
Short naked options can always be rolled
out in time for a credit without adding
NOT IDEAL any additional risk. Rolling out in time
The stock decreases in value. As the stock goes down, the value of the put option will increase, extends duration and increases intrinsic
which means you may see losses if the option is worth more than you sold it for to start the value in the position, which lowers your
trade. breakeven on the trade overall.

VOLATILITY IF VOLATILITY EXPANDS HIGH IV

We may hold - this may result in an extrinsic value loss, but extrinsic value will always go to zero by BASELINE
expiration. LOW IV

IF VOLATILITY CONTRACTS
Close for a winner if we reach our desired profit target and the strike is still OTM.

EXPIRATION
IF OTM AT EXPIRATION
The put will expire worthless, and we keep the credit received up
front as profit.

P ORIG

IF ITM AT EXPIRATION
If the option is ITM through expiration, the put seller will be
put 100 shares of that stock at the strike price. To avoid this,
we roll out the position in time or close it.

TAKEAWAYS
Short puts can be profitable if the stock stays the same, goes up, or even goes If a short put goes ITM, it will replicate the same risk profile as a covered call on
down a little bit as long as the strike remains OTM through expiration. The many the same strike, so many traders tend to roll short puts perpetually vs closing for a
ways to be profitable translates to a high probability trade when sold OTM. loss. However, everyone has a different risk tolerance.

30
 OPTIONS STRATEGY

SHORT PUT Neutral-Bullish defined risk credit trade where we are betting against the stock moving below our short strike price by
the expiration of our contract. Spread width depends on account size, risk tolerance, etc.

VERTICAL SPREAD DIRECTIONAL ASSUMPTION

Neutral-Bullish
IV ENVIRONMENT
High
DAYS TO EXPIRATION
45
PROBABILITY OF PROFIT
60% to 80%

SETUP 1 Sell an OTM/ATM put

EXAMPLE

With XYZ stock at

$100, we might sell

P a 95/90 put spread

and look to collect
$1.65.

P STOCK PRICE

100
2 Buy a further OTM put

MAX PROFIT
Credit Received
DELTA
MAX LOSS Long 95 P
Distance Between Strikes - Credit Received
VEGA
PROFIT TARGET Short
50% of Max Profit
THETA
BREAKEVEN Long
Short Put Strike - Credit Received
GAMMA
90 P
Flat

TASTYLIVE APPROACH

HOW THE TRADE WORKS

IDEAL
The stock increases in value. A short put spread is a directionally bullish
position so ideally the stock rises, time passes, volatility contracts, or a
combination of the three so the spread loses value over time.

P
P

P
NOT IDEAL DEFENSIVE TACTICS
The stock decreases in value. The value of the short put spread can increase, which means the
If the spread is OTM/ATM, rolling out
spread will be more expensive compared to the original opening sale price, which would result
to a farther expiration can be done for
in a loss.
a credit, which adds time to the trade,
reduces max loss, and increases max
profit if the new spread expires OTM.

VOLATILITY
IF VOLATILITY EXPANDS HIGH IV

We may hold - this may result in an extrinsic value loss, but extrinsic value will always go to zero BASELINE
by expiration. LOW IV

IF VOLATILITY CONTRACTS
This could result in a profitable trade, as extrinsic value goes down across the board, so we may
consider closing if the trade is profitable.

EXPIRATION
IF OTM AT EXPIRATION
The trade will realize max profit - we can close it to
remove risk, or let it expire worthless if we believe it
will remain OTM.

P ORIG
IF ITM AT EXPIRATION
We close the trade - holding a put spread through IF PARTIALLY ITM AT EXPIRATION
expiration will result in both options being exercised We either roll out in time to extend the trade or close it. We avoid letting these trades go through expiration because
resulting in no position, but we close the trade for max if the short put is ITM and the long put is OTM, we can come back to the market the next trading session with 100
loss to avoid assignment. shares of stock.

TAKEAWAYS
Vertical spreads have a less volatile P/L because of the long option that defines With spreads, it’s important to realize that options will be exercised if they are ITM
our risk. If we see profit on the short option, we will see losses on the long option and held through expiration. If one strike is ITM and the other moves OTM, close
and vice versa. For this reason, we should expect to be in spread trades longer the trade prior to expiration to avoid unwanted shares.
than naked options to reach profit targets.

31
 OPTIONS STRATEGY

A bullish position that is constructed by selling an OTM short put combined with an OTM short call spread, where the

JADE LIZARD
total credit received is greater than the width of the call spread to remove upside risk entirely.

DIRECTIONAL ASSUMPTION IV ENVIRONMENT DAYS TO EXPIRATION PROBABILITY OF PROFIT

Neutral-Bullish High 45 60% to 80%

SETUP EXAMPLE

1 Sell an OTM put 2 Sell an OTM vertical call spread

With XYZ stock at
$100, we may sell 110 C
the 95 put and sell
STOCK PRICE
C the 105/110 call
spread for a credit
over $5.00.
105 C
P C

100
MAX PROFIT
Credit Received
DELTA
MAX LOSS Long
Short Put Strike x 100 - Credit Received
VEGA
95 P
PROFIT TARGET Short
50% of Max Profit
THETA
BREAKEVEN Long
Short Put Strike - Credit Received
GAMMA
Short

TASTYLIVE APPROACH

HOW THE TRADE WORKS IDEAL

The stock stays between our short strikes. There is no risk to the upside if our
net credit is greater than the width of the call credit spread, but max profit is
realized if all options expire OTM.

P C
P
NOT IDEAL DEFENSIVE TACTICS
The stock goes down. We have a naked short put, so if the stock drops below our short put If the short put is ITM, we can either
strike, we take on intrinsic value losses equivalent to 100 shares of stock, less the credit roll that out in time, or roll the call
received from selling the jade lizard up front. spread down to defend the short
put. We just ensure that there is no
risk to the upside by keeping the net
credit higher than the width of the call
spread we roll to.

VOLATILITY
HIGH IV
IF VOLATILITY EXPANDS
BASELINE
We may hold - this may result in an extrinsic value loss, but extrinsic value will always go LOW IV
to zero by expiration.

IF VOLATILITY CONTRACTS
We look to close the position for a profit if our strikes are still OTM.

IF OTM AT EXPIRATION
EXPIRATION All options will expire worthless and we’ll keep the credit received up front as profit.

P ORIG C

IF ITM AT EXPIRATION IF PARTIALLY ITM AT EXPIRATION

The short put can be rolled out in time if we don’t mind being bullish on the product for We typically close the trade for a profit to ensure we
another cycle, and we can roll the call spread out in time as well if we want to keep that do not end up with short shares in the next trading
portion of the trade on. session.

TAKEAWAYS
The most important aspect of the jade lizard is to ensure the net credit Because we are taking risk on the call side in this trade, ensure that the
received is greater than the width of the call spread - this ensures we have no premium we are collecting on the call spread is around 1/3rd the width.
risk to the upside, and increases our probability of profit substantially. There is no reason to take risk on that side or reduce our potential max profit
if we’re not collecting a fair amount to do so.

32
 OPTIONS STRATEGY

Neutral-Bearish undefined risk credit trade where we are betting against the stock moving above our strike price by

SHORT NAKED CALL

the expiration of our contract.

DIRECTIONAL ASSUMPTION IV ENVIRONMENT DAYS TO EXPIRATION PROBABILITY OF PROFIT

Neutral-Bearish High 45 60% to 80%

SETUP EXAMPLE

1 Sell an OTM call

With XYZ stock at
$100, we might sell
a 105 strike call and
look to collect $1.00
105 C
in credit.

STOCK PRICE C
100

MAX PROFIT
Credit Received
DELTA
MAX LOSS
Short
Unlimited
VEGA
PROFIT TARGET Short
50% of Max Profit
THETA
BREAKEVEN Long
Call Strike + Credit Received
GAMMA
Short

TASTYLIVE APPROACH

HOW THE TRADE WORKS

C
IDEAL DEFENSIVE TACTICS
The stock decreases in value. As time passes, and if volatility Short naked options can usually be rolled
decreases, the extrinsic value of the call will decrease. As long as we out in time for a credit without adding
buy back the call for less than we sold it for, we lock in a profit. any additional risk. Rolling out in time
extends duration and increases extrinsic
value in the position, which improves
your breakeven on the trade overall.

NOT IDEAL
The stock increases in value. As the stock goes up, the value of the call will increase, which
means you may see losses if the option is worth more than you sold it for when you opened the
trade.

VOLATILITY IF VOLATILITY EXPANDS HIGH IV

We may hold - this may result in an extrinsic value loss, but extrinsic value will always go to zero by BASELINE
expiration. LOW IV

IF VOLATILITY CONTRACTS
Close for a winner if we reach our desired profit target and the strike is still OTM.

EXPIRATION
IF ITM AT EXPIRATION
If the option is ITM through expiration, the call seller will be short
100 shares of that stock at the strike price. To avoid this, we roll
the position out in time or close it.

ORIG C
IF OTM AT EXPIRATION
The call will expire worthless, and we keep the credit received up
front as profit.

TAKEAWAYS
Short calls can be profitable if the stock stays the same, goes down, or even goes Short ITM calls could be subject to additional assignment risk due to dividends.
up a little bit as long as the strike remains OTM through expiration. The many If you’re trading a dividend stock and have an ITM short call with an upcoming
ways to be profitable translates to a high probability trade when sold OTM. dividend, ensure that your short call’s extrinsic value is more than the expected
dividend. If it is less, consider rolling the position out in time to add extrinsic value
and remove dividend assignment risk.
33
 OPTIONS STRATEGY

SHORT CALL
Neutral-Bearish defined risk credit trade where we are betting against the stock moving above our short strike price by
the expiration of our contract. Spread width depends on account size, risk tolerance, etc.

VERTICAL SPREAD DIRECTIONAL ASSUMPTION

Neutral-Bearish
IV ENVIRONMENT
High
DAYS TO EXPIRATION
45
PROBABILITY OF PROFIT
60% to 80%

SETUP 2 Buy a further OTM call

EXAMPLE

With XYZ stock at 110 C

$100, we might
sell a 105/110 call
spread and look to
collect $1.65.
STOCK PRICE
C 105 C

C
MAX PROFIT 100
Credit Received
DELTA
MAX LOSS Short
1 Sell an ATM/OTM call Distance Between Strikes - Credit Received
VEGA
PROFIT TARGET Short
50% of Max Profit
THETA
BREAKEVEN Long
Call Strike + Credit Received
GAMMA
Flat

TASTYLIVE APPROACH
C
HOW THE TRADE WORKS C
DEFENSIVE TACTICS
If the spread is OTM/ATM, rolling out
NOT IDEAL to a further expiration can be done for
The stock increases in value. The value of the short call spread can a credit, which adds time to the trade,
increase, which means the spread will be more expensive compared to reduces max loss, and increases max
the original opening sale price, which would result in a loss. profit if the new spread expires OTM.

IDEAL
The stock decreases in value. A short call spread is a directionally bearish position - so ideally
the stock price falls, time passes, volatility contracts, or a combination of the three so that the
spread loses value over time.

VOLATILITY IF VOLATILITY EXPANDS HIGH IV

The trade may increase in extrinsic value, but if the increase in IV is paired BASELINE
with a selloff, the trade could be profitable and we can close for a winner. LOW IV

IF VOLATILITY CONTRACTS
The trade may lose value, unless this is paired with a bullish move that
could offset the extrinsic value contraction.

EXPIRATION
IF ITM AT EXPIRATION
The trade will be at max loss, and we can close the trade to
avoid assignment.

C
ORIG
C IF PARTIALLY ITM AT EXPIRATION
IF OTM AT EXPIRATION We either close the trade or roll out in time to extend
it. We avoid letting these trades go through expiration
Both options will expire worthless, and the trade
because if the short call is ITM and the long call is OTM,
will be at max profit.
we can come back to the market in the next trading
session with 100 shares of short stock.

TAKEAWAYS
Vertical spreads have a less volatile P/L because of the long option that defines With spreads, it’s important to realize that options will be exercised if they are
our risk. If we see profit on the short option, we will see losses on the long option ITM and held through expiration. If one strike is ITM and the other moves OTM,
and vice versa. For this reason, we should expect to be in spread trades longer close the trade prior to expiration to avoid unwanted shares.
than naked options to reach profit targets.

34
 OPTIONS STRATEGY

REVERSE JADE
A bearish position that is constructed by selling an OTM call combined with an OTM short put spread, where the total
credit received is greater than the width of the put spread to remove downside risk entirely.

LIZARD DIRECTIONAL ASSUMPTION

Neutral-Bearish
IV ENVIRONMENT
High
DAYS TO EXPIRATION
45
PROBABILITY OF PROFIT
60% to 80%

SETUP EXAMPLE

1 Sell an OTM vertical put spread 2 Sell an OTM call

With XYZ stock at
$100, we may sell 110 C
the 110 call and
P STOCK PRICE
sell the 95/90 put
spread for a credit
over $5.00.

P C

100
MAX PROFIT
Credit Received
DELTA
MAX LOSS Short
Unlimited
VEGA
95 P
PROFIT TARGET Short
50% of Max Profit
THETA
BREAKEVEN Long
Short Call Strike + Credit Received
GAMMA 90 P
Short

TASTYLIVE APPROACH

HOW THE TRADE WORKS NOT IDEAL

The stock goes up. We have a naked short call, so if the stock rallies above our short call
strike, we take on intrinsic value losses equivalent to 100 short shares of stock, less the
credit received from selling the reverse jade lizard up front.

P C
P C
DEFENSIVE TACTICS
IDEAL
If the short call is ITM, we can either
The stock stays between our short strikes. There is no risk to the downside if roll that out in time, or roll the put
our net credit is greater than the width of the put credit spread, but max profit spread up to defend the short call.
is realized if all options expire OTM. We just ensure that there is no risk
to the downside by keeping the net
credit higher than the width of the
put spread we roll to.

VOLATILITY
HIGH IV
IF VOLATILITY EXPANDS
BASELINE
We may hold - this may result in an extrinsic value loss, but extrinsic value will always go LOW IV
to zero by expiration.

IF VOLATILITY CONTRACTS
We look to close the position for a profit if our strikes are still OTM.

IF OTM AT EXPIRATION
EXPIRATION All options will expire worthless and we’ll keep the credit received up front as profit.

P ORIG C

IF PARTIALLY ITM AT EXPIRATION IF ITM AT EXPIRATION

We typically close the trade for a profit to ensure we The short call can be rolled out in time if we don’t mind being bearish
do not end up with shares in the next trading session. on the product for another cycle, and we can roll the put spread out in
time as well if we want to keep that portion of the trade on.

TAKEAWAYS
The most important aspect of the reverse jade lizard is to ensure the net Because we are taking risk on the put side in this trade, ensure that the
credit received is greater than the width of the put spread - this ensures premium we are collecting on the put spread is around 1/3rd the width. There
we have no risk to the downside, and increases our probability of profit is no reason to take risk on that side or reduce our potential max profit if
substantially. we’re not collecting a fair amount to do so.

35
 OPTIONS STRATEGY

GLOSSARY

DIRECTIONAL the outlook a trader chooses based on PROBABILITY The likelihood of making at least $.01 on a
ASSUMPTION whether they want an underlying to increase OF PROFIT position. This metric can be altered based
(bullish), decrease (bearish), or remain on strategy, strike selection, trade price, and
unchanged in price (neutral). Directional more.
assumption can be based on market
awareness, statistical analysis, trading style,
and more.
MAXIMUM PROFIT The greatest possible amount a position
can make.
BEING LONG When you are long something, it means you
purchased it (an option, a spread, a stock, a
futures contract) to open the trade and you MAXIMUM LOSS The greatest possible amount a position
want it to increase in value. If you’re long can lose.
a put, you want the contract to increase in
value with the stock price dropping, and if
TASTYLIVE APPROACH you’re long a call you want it to increase in
value with the stock price rising. PROFIT TARGET A feasible amount a trader can hope to
make in a given position. Profit targets
can be impacted by trade price, capital
BEING SHORT When you are short something, it means required, risk tolerance, days in the
you sold it (an option, a spread, a stock, a trade, and more.
futures contract) to open the trade and you
want it to decrease in value. If you’re short
a put, you want the contract to decrease
BREAKEVEN The price(s) at which a position is neither
in value with the stock price rising or time
making or losing money. There are different
passing. If you’re short a call, you want it
calculations for breakeven prices based on
to decrease in value with the stock price
trade price (credit or debit paid), strategy
dropping or time passing.
complexity, and whether or not a position
has been rolled.
BEING BULLISH A directional assumption that the price of
an underlying will increase in price over a
given timeframe. EXTRINSIC VALUE Extrinsic value, also referred to as “time
value” or “risk premium,” is everything
that is not intrinsic value. Because the
BEING BEARISH A directional assumption that the price of intrinsic value is always known, extrinsic
an underlying will decrease in price over a value is equal to the total option premium
given timeframe. less intrinsic value. The extrinsic value of
an option therefore fluctuates based on
supply and demand (i.e. the market price
IV ENVIRONMENT Implied volatility (IV) in the market refers
of volatility). Total Option Value = Extrinsic
to the forecasted magnitude of potential
Value + Intrinsic Value
movement away from the underlying price
in a year’s time.
IV is not a static metric, but it’s helpful
in traders understanding ranges from a DELTA The rate of change in an option’s theoretical
statistical perspective to help with risk value for a $1 change in the price of the
management, buying power etc underlying security, all else equal. Delta
helps us get a better understanding of our
Low implied volatility environments tell us directional exposure, our share equivalency
that the market isn’t expecting the stock in an options position, and can also be used
price to move much from the current stock as a proxy for estimating probability of
price over the course of a year. Whereas, expiring ITM.
a high implied volatility environment tells
us that the market is expecting large
movements from the current stock price
over the course of the next twelve months. VEGA The rate of change in an option’s extrinsic
value given a 1% change in implied
volatility, all else equal. Long options have
DAYS TO The number of days until an option or positive vega as they’d benefit from an
EXPIRATION futures contract expires. Unlike stock or increase in IV. Short options have negative
ETFs, options and futures have a date at vega. Vega values will be positive or
which they cease to trade. Traders can negative depending on the strategy being
select from shorter duration or longer implemented, where the strategy’s strikes
term trades based on their trading style, are in relation to the underlying price, and
investment goals, and assumption over the whether implied volatility is expanding or
given timeframe they are trading. contracting.

36
GLOSSARY (CONT.)

THETA The rate of decay of an option’s extrinsic ATM An at-the-money (ATM) option is a contract
value, given a one-day passage of time, that is trading very close to the underlying
all else equal. Positive theta comes from price, and is very close to being ITM. For
option selling since it is beneficial to the example, if XYZ is trading at $99.38 and
seller, and negative theta comes from the option chain had $1 wide strikes, the at
option buying as decaying extrinsic value is the money contracts would be the $99 and
bad for an option buyer. Since the markets $100 strikes. ATM strikes have the highest
are constantly moving, it’s important to extrinsic value compared to OTM or ITM
understand the concept of theta but don’t strikes because of the uncertainty of the
overthink it - theta is generally a weak option being ITM at expiration.
contributor to daily changes in an options
price.
OTM An out-of-the-money (OTM) is an option that
does not have intrinsic value, and is purely
GAMMA The rate of change of an option’s delta, extrinsic value. In call options, an OTM
given a $1.00 move in the underlying, all strike or contract would be trading above
else equal. Long option holders benefit from the underlying price. In put options, an OTM
gamma. For option sellers, Gamma can strike or contract would be trading below
accelerate losses and decelerate directional the underlying price. All of this extrinsic
gains. value goes away by expiration if the option
remains OTM.

VOLATILITY Volatility expansion - an increase in volatility

EXPANSION/ INTRINSIC VALUE The intrinsic value of an in-the-money (ITM)
which is often signified by the widening
CONTRACTION option is equal to the difference between
of prices, and increases in daily trading
the strike price and the market value of
ranges. Volatility expansion will aide long
the underlying security. For example, the
premium trades (like debit spreads) and
$35 strike call with the underlying trading
hinder short premium trades (like credit
$40 has an intrinsic value of $5. Out-of-the-
spreads). Volatility contraction is just the
money (OTM) options do not have intrinsic
opposite: a reduction in volatility, with more
value, only extrinsic value.
compact trading ranges and cheaper option
prices. IV expansion and contraction are not
dependent on price direction, but rather is
dependent on magnitude of price moves.

DAYS TO The number of days until an option or

EXPIRATION futures contract expires. Unlike stock or
ETFs, options and futures have a date at
which they cease to trade. Traders can
select from shorter duration or longer
term trades based on their trading style,
investment goals, and assumption over the
given timeframe they are trading.

ITM If an option is in-the-money (ITM), it

means it has real value at expiration to
the option owner. In call options, an ITM
strike or contract would be trading below
the underlying price. In put options, an ITM
strike or contract would be trading above
the underlying price.

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