Strategies

Options Strategies ## Overview Options strategies range from simple single-leg positions to complex multi-leg combinations. The Series 7 exam tests your ability to identify the correct strategy for a given market outlook, calculate maximum gain/loss/breakeven, and understand why each strategy is used. This section covers the most frequently tested strategies. A useful framework for every strategy: before solving, identify (1) the market outlook and (2) whether it's debit or credit. --- ## Single-Leg Strategies ### Long Call — Bullish, Unlimited Upside The investor buys a call option, paying the premium. Profits if the stock rises significantly above the strike. - Outlook: Bullish - Cost: Debit (pay premium) - Max Gain: Unlimited (stock can rise indefinitely) - Max Loss: Premium paid (capped — worst case option expires worthless) - Breakeven: Strike Price + Premium > Example: Buy 1 XYZ $50 call at $3. Breakeven = $53. If stock goes to $65, gain = $65 − $53 = $12 per share. --- ### Long Put — Bearish, Significant Downside Play The investor buys a put option, paying the premium. Profits if the stock falls significantly below the strike. - Outlook: Bearish - Cost: Debit (pay premium) - Max Gain: Strike − Premium (stock falls to zero; max gain = $50 − $3 = $47 on a $50 strike/$3 premium put) - Max Loss: Premium paid - Breakeven: Strike Price − Premium > Example: Buy 1 XYZ $50 put at $3. Breakeven = $47. If stock falls to $35, gain = $47 − $35 = $12 per share. --- ### Covered Call — Neutral to Slightly Bullish, Income Strategy The investor owns the underlying stock and writes (sells) a call against it.…