A long stock is an expression used when you own shares of a company. It represents a claim on the company’s assets and earnings. As you increase your holdings of a stock, your ownership stake in the company increases. Read this post to learn about the components of a long stock, and what it looks like graphically.
A short stock is an expression used when you sold shares of a company that you did not own beforehand, and is described in more detail in this post!
A butterfly is a volatility bet that the trader can implement to protect against large fluctuations, or to gain on volatility.
A Strangle is a volatility bet where you simultaneously long a put at Strike Price 2 and long a put at Strike Price 1, betting the stock price will make a big movement in either direction. This is similar to a Straddle, but the trader shorts the stocks instead of buying them (but the profit is basically the same)
Straddles an option strategy that profits with volatility. You simultaneously buy long a call at Strike Price 1 and long a put at Strike Price 1. This creates a triangular shaped payoff and profit graph where the reward is based on the volatility of the stock – you’ll make a profit if the stock’s price makes a BIG move in either direction, but take a loss if it doesn’t move much.
A bullish collar is a protection strategy where you simultaneously buy a call at strike price 1 and sell a put at strike price 2. This strategy is for investors who has a bullish perception on the underlying asset. We can also create a “bearish” collar by simultaneously buying a put at strike price 1 and selling a call at strike price 2.
A ratio strategy is an option strategy that is created by having X amount of call options at Strike Price 1 and shorting Y amount of call options at Strike Price 2. This strategy is used when the investor thinks the price won’t move much, but they want to get a bigger profit based on a slight movement up or down.
A box spread is an option strategy that is created by combining the components of the bull spread and the bear spread. In theory, a box spread should always have a zero profit and zero loss, but some investors use them if they see that current options prices aren’t fully “priced in”. In many cases, the commissions charged for the trades needed for this spread will be greater than the profit.
A bear spread is a strategy where you simultaneously buy a call option at Strike Price 1 (some amount higher than the current market rate), and sell a call option at Strike Price 2 (some amount lower than the current market right). This is used if the trader thinks the price of the stock will go down, but not by much. It limits both the risk and reward.
A bull spread is a strategy where you simultaneously buy a long call at Strike Price 1, and sell a call for Strike Price 2 (some higher amount). Use this strategy if you think that a stock’s price will go up above your Point 1, but not as high as your Point 2.