Ultimate Strategy Guide Option Alpha
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The “Ultimate”
Options Strategy
Guide
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!1
Required Copyright & Legal Disclosures
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!2
Table of Contents
Why Trade Options vs. Stocks? 5 .......................................................
How To Find The Absolute Best Options Strategy 8 .......................
#1 - Make A Directional Market Assumption 12 .............................
#2 - Find Implied Volatility's Relative Ranking 20 ........................
#3 - Targeting The Best Options Strategy for You 37 ....................
Option Payoff Diagrams 41 .................................................................
Terms & Definitions 42 ........................................................................
Put Credit Spread 45 ............................................................................
Short Naked Put 47 ...............................................................................
Put Broken Wing Butterfly 49 ............................................................
Custom Naked Put 51 ...........................................................................
Call Debit Spread 54 .............................................................................
Call Calendar Spread 56 ......................................................................
Call (Ratio) Backspread 58 ...................................................................
Put Diagonal Spread 60 .......................................................................
Short Straddle 63 ..................................................................................
Short Strangle 65 ..................................................................................
!3
Short Iron Condor 67 ............................................................................
Short Iron Butterfly 69 ........................................................................
Call Credit Spread 73 ............................................................................
Short Naked Call 75 ...............................................................................
Call Broken Wing Butterfly 77 ............................................................
Custom Naked Call 79 ..........................................................................
Put Debit Spread 82 ..............................................................................
Put Calendar Spread 84 .......................................................................
Put (Ratio) Backspread 86 ...................................................................
Call Diagonal Spread 88 .......................................................................
About the Author 90............................................................................
!4
Why Trade Options vs. Stocks?
A Special Note From Kirk Du Plessis
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!5
Introduction
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How To Find The Absolute
Best Options Strategy
The 3-Step Options Strategy Process
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“Choosing)which)option)strategy)to)use)for)
any)particular)trade)setup)is)a)process)of)
elimination,)NOT)selection.”)
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!9
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!11
Make Smarter, More Profitable Option
Trades With Daily Alerts via Email & Text
Click Here to Learn More…
#1 - Make A Directional
Market Assumption
And Why Portfolio Balance Matters More
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!12
Step One of Three
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!13
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!14
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!15
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!16
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“It)rarely)pays)to)be)a)one-sided)trader.)If)you)
want)to)be)successful)trading)in)any)market)
you've)got)to)trade)in)both)directions.”)
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!17
Sell 1 CALL & Sell 1 PUT (Short Strangle) at the
Combined 70% Probability Level Every Month
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!18
#2 - Find Implied Volatility's
Relative Ranking
Our Mathematical “Edge” As Option Sellers
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!20
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Step Two of Three
How Casinos Make Money
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!21
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“Having)this)table)limits)increases)the)
number)of)‘plays’)a)person)will)make)which)
thus)increases)the)house)edge)back)to)the)
casino.)The)longer)you)play,)the)more)you)
stand)to)lose)-)period.”)
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!22
How Insurance Companies Make Money
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!23
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!24
Option Pricing & Implied Volatility
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!25
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“The)ONLY)data)point)in)an)option’s)price)we)
don't)know)for)certain)is)how)volatile)the)
stock)will)be)in)the)future.”) ) )
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Why Should We Care So Much About
Implied Volatility & Option Pricing?
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!26
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5'&B'!&1!+--?4.3!%-!#1%/.3!%'$&!$*.!6?$?1.!%4#)%.3!C&)+$%)%$0!.-$%4+$.=!
^%$*!4.!-&!6+1e!J$c-!#1.$$0!)&2%/+)!*&B!&#$%&'!#1%/%'2!B&15-!B*.'!0&?!71.+5!%$!3&B'!)%5.!
$*%-!*?*e!V?$!$*.1.c-!&'.!5.0!#&%'$!B.!*+C.'c$!3.A%'.38!?'$%)!'&B8!+'3!$*+$c-!&?1!n.32.n=!
Over-Expectation of Implied Volatility
JcC.!)%5.)0!/&'C%'/.3!0&?!70!'&B!&6!$B&!%4#&1$+'$!$1?$*-!B*.'!%$!/&4.-!$&!&#$%&'-!$1+3%'2=!
<.%$*.1!#&%'$!/+'!7.!+12?.3!7./+?-.!$*.!3+$+!-?##&1$-!7&$*!/+-.-=!I%1-$8!A%'+'/%+)!4+15.$-!
+1.!.6A%/%.'$8!%'!$*.!-.'-.!$*+$!$*.1.!%-!'&!n.32.n!0&?!/+'!2+%'!#%/5%'2!-$&/5-!3%1./$%&'+))0=!
M./&'38!$*+$!%4#)%.3!C&)+$%)%$08!%=.=!$*.!4+15.$c-!.N#./$.3!6?$?1.!4&C.8!*+-!+!31+4+$%/!
%4#+/$!&'!$*.!C+)?.!+'3!#1%/.!&6!+'!&#$%&'!/&'$1+/$=!
J6!7&$*!&6!$*.-.!-$+$.4.'$-!+1.!$1?.8!$*.'!$*.!'.N$!1.+-&'+7).!U?.-$%&'!$&!+-5!%-8!nJ6!$*.!
4+15.$-!+1.!.6A%/%.'$!+'3!%4#)%.3!C&)+$%)%$0!%'A)?.'/.-!&#$%&'!#1%/%'28!$*.'!*&B!/+'!B.!2+%'!
+'!c.32.c!$1+3%'2!&#$%&'-en!
[.1.c-!$*.!)&'2!+B+%$.3!+'-B.1===!
!28
“Our)edge)trading)options)is)gained)by)taking)
advantage)of)the)mis-pricing)that)occurs)
from)implied)volatility's)over-expectation)of)
the)actual)volatility)a)stock)sees)long-term.”)
J'!.C.'!-%4#).1!$.14-8!B.!/&'-%-$.'$)0!-.))!&#$%&'-!$*+$!+1.!&C.1#1%/.3!7./+?-.!&6!%4#)%.3!
C&)+$%)%$0=!('38!?'3.1-$+'3%'2!+'3!+//.#$%'2!$*%-!-$+$.4.'$!%-!$*.!5.0!$&!0&?1!+7%)%$0!$&!
$1+3.!&#$%&'-!-?//.--6?))0!)&'2H$.14!H!#.1%&38!.'3!&6!-$&10=!
W&?!-..8!?#!?'$%)!'&B!B*+$!0&?!*+C.'c$!3%-/&C.1.3!+7&?$!%4#)%.3!C&)+$%)%$0!%-!$*+$!.C.'!
$*&?2*!$*.!4+15.$!4%2*$!%4#)0!$*+$!+!-$&/5!B%))!4&C.!ogp!?#!&1!3&B'!%'!$*.!'.N$!0.+18!
+'3!#1%/.!$*.!&#$%&'-!+//&13%'2!$&!$*%-!+--?4#$%&'8!$*.!1.+)%$0!%-!$*+$!%'!'.+1)0!+))!/+-.-!
)&'2H$.148!-$&/5-!$.'3!$&!4&C.!P*QQ!$*+'!.N#./$.3=!
M&8!%6!$*.!4+15.$!.N#./$.3!+!-$&/5!$&!4&C.!ogp!)+-$!0.+18!B*.'!B.!2&!7+/5!+'3!$1+/5!$*.!
+/$?+)!1+'2.!C-=!$*.!.N#./$.3!1+'2.8!B.!4%2*$!A%'3!$*+$!$*.!-$&/5!&')0!4&C.3!+-!4?/*!+-!
jgp!)+-$!0.+1=!J$!/&?)3!*+C.!7..'!?#!&1!3&B'!7?$!%'!+'0!/+-.8!$*.!4+15.$!*+3!*%2*.1!
.N#./$+$%&'-!$*+'!B*+$!+/$?+))0!$&&5!#)+/.=!
"'!$*.!&#$%&'-!-%3.8!$*%-!4.+'-!$*+$!%6!0&?!#?1/*+-.3!&#$%&'-!+))!0.+1!.N#./$%'2!+'&$*.1!
+''?+)!4&C.!?#!&1!3&B'!&6!ogp!7?$!&')0!-+B!+!jgp!4&C.!?#!&1!3&B'8!0&?!)&-$!4&'.0!
7./+?-.!0&?!+)B+0-!#+%3!6&1!+'!&#$%&'!.N#./$%'2!+!B%)3!4&C.!%'!$*.!-$&/5!$*+$!'.C.1!)%C.3!
?#!$&!0&?1!.N#./$+$%&'-=!J6!0&?!#+%3!wugg!6&1!+!/+))!&#$%&'!.C.10!$B&!4&'$*-!B*.'!$*.!
4+15.$!B+-!.N#./$%'2!$*.!-$&/5!$&!4&C.!ogp!6&1!$*.!0.+18!+$!$*.!.'3!&6!$*.!0.+1!-%'/.!$*.!
-$&/5!&')0!4&C.3!jgp!$*&-.!/&'$1+/$-!4%2*$!*+C.!7..'!B&1$*!wiug!.+/*!7./+?-.!$*.!-$&/5!
3%3'c$!4&C.!+-!4?/*!+-!$*.!4+15.$!+--?4.3!%$!B&?)3=!
S*%'5!7+/5!$&!&?1!)%6.!%'-?1+'/.!/&4#+'0!.N+4#).!%'!$*.!#1.C%&?-!#+2.-=!9%6.!%'-?1+'/.!
/&4#+'%.-!#1%/.!$*.%1!#&)%/%.-!&'!$*.!.N#./$+$%&'!$*+$!#.&#).!3%.!4&1.!&6$.'!$*+'!$*.0!
+/$?+))0!3&!%'!1.+)%$0=!\+07.!$*.0!+--?4.!$*+$!'.B!/)%.'$-!)%5.!0&?!3%.!hp!&6!$*.!$%4.!
7.6&1.!$*.!#&)%/0!$.14%'+$.-8!+'3!/*+12.!0&?!+'!%'-?1+'/.!#1.4%?4!1.)+$%C.!$&!$*%-!1%-5!
B*.'!%'!6+/$!$*.!/*+'/.!&6!0&?!30%'2!%-!&')0!g=fup=!J'!.--.'/.8!$*.0!#1%/.3!$*.!#&)%/0!B%$*!
-&4.!4+12%'!D+=5=+=!n.32.nG!+7&C.!B*+$!$*.!+/$?+)!.N#./$.3!#1&7+7%)%$0!&6!0&?!30%'2!%-!%'!
$*.!6?$?1.=!
!29
S*.!-+4.!/&'/.#$!&6!&C.1H.N#./$+$%&'!*&)3-!$1?.!%'!$*.!&#$%&'-!4+15.$=!J4#)%.3!C&)+$%)%$0!
/&44&')0!#1%/.-!%'!+!4&1.!C&)+$%).!4&C.!%'!$*.!?'3.1)0%'2!-$&/5!$*+'!+/$?+))0!&//?1-=!
S*.1.6&1.8!$*.!C+)?.!&6!&#$%&'!/&'$1+/$-8!7&$*!/+))-!+'3!#?$-8!+$!$*.!7.2%''%'2!&6!+'!
.N#%1+$%&'!/0/).!+1.!+)B+0-!-)%2*$)0!*%2*!1.)+$%C.!$&!B*+$!%$!.'3-!?#!7.%'2!B*.'!$*.!
?'3.1)0%'2!-$&/5!4&C.-!#)+0!&?$=!
"?1!n.32.n!$*.1.6&1.8!%-!3./%-%C.)0!%'!-.))%'2!$*.-.!&C.1H#1%/.3!&#$%&'-T!4?/*!)%5.!+'!
%'-?1+'/.!/&4#+'0!-.))%'2!)%6.!%'-?1+'/.=!QN/.#$8!B.))8!B.!/+'!4+5.!4&'.0!B%$*&?$!*+C%'2!
$&!.'-?1.!-&4.&'.c-!3.+$*=!
J'!$0#%/+)!6+-*%&'8!J!3&'c$!P?-$!B+'$!$&!-#&?$!&66!$*.&10=!J!B+'$!$&!#1&C.!$*+$!$*%-!&C.1H
.N#./$+$%&'!/+?-.3!70!%4#)%.3!C&)+$%)%$0!%-!+!1.+)%$0!-&!$*+$!0&?!7./&4.!.C.'!4&1.!
/&'A%3.'$!%'!0&?1!+7%)%$0!$&!$1+3.!&#$%&'-!-?//.--6?))0!6&1!0.+1-=!
Implied Volatility vs. Actual Volatility (DIA)
"'!$*.!/*+1$!+7&C.!0&?c))!-..!$*+$!B.!$1+/5.3!C&)+$%)%$0!6&1!>J(8!+!4+P&1!4+15.$!QSI!6&1!$*.!
>&B!b&'.-8!+))!$*.!B+0!7+/5!$&!fggl=!S*.!7)?.!&1!$.+)!/&)&1.3!)%'.!-*&B-!$*.!4&'$*)0!
%4#)%.3!C&)+$%)%$0!1.+3%'2!.+/*!3+0=!S*.!)%2*$.1!21..'!)%'.!-*&B-!$*.!+/$?+)!&1!1.+)%d.3!
C&)+$%)%$0!lg!3+0-!61&4!$*.!3+$.!&6!4.+-?1.4.'$!6&1!.+/*!#.1%&3=!
M&8!B+-!$*.!>&B!b&'.-!).--!C&)+$%).!$*+'!$*.!4+15.$!.N#./$.3!%$!$&!7.e!W.#m!"'!+C.1+2.8!$*.!
>J(!.N#./$.3!$*.!4+15.$!$&!*+C.!+!-)%2*$)0!4&1.!C&)+$%).!.'C%1&'4.'$!$*+'!*+3!7..'!
1.+)%d.3!&C.1!$*.!)+-$!hl!0.+1-=!S*.!+C.1+2.!3%66.1.'/.!7.$B..'!$*.!>J(c-!%4#)%.3!C&)+$%)%$0!
+'3!+/$?+)!C&)+$%)%$0!3?1%'2!$*%-!#.1%&3!B+-!+##1&N=!k=fup=!S*%-!%'3%/+$.-!$*+$!$*.!&#$%&'-!
4+15.$!/&'-%-$.'$)0!.N#./$.3!>J(!$&!4&C.!&'!+C.1+2.!k=fup!4&1.!$*+'!%$!+/$?+))0!3%3=!
!31
K./+))!$*+$!%6!+'!&#$%&'-!&')0!?'5'&B'!6+/$&1!%'!#1%/%'2!%-!3.$.14%'.3!70!%4#)%.3!C&)+$%)%$0!
&1!6?$?1.!.N#./$.3!4&C.-8!+'3!$*+$!6?$?1.!4&C.!$?1'-!&?$!$&!7.!).--!C&)+$%).!$*+'!
+'$%/%#+$.38!$*.'!$*.!&#$%&'!%-!$*.&1.$%/+))0!&C.1#1%/.3=!M&!%6!0&?1!&#$%&'!/&'$1+/$!%-!#1%/.3!
+--?4%'2!+!fup!4&C.!+'3!$*.!-$&/5!&')0!4&C.3!fgp8!0&?!#+%3!$&&!4?/*!4&'.0!6&1!$*+$!
&#$%&'!/&'$1+/$=!
“Those)traders)who)are)net)option)sellers)
more)often)than)net)option)buyers)have)a)
deMined,)mathematical)edge)even)in)an)
efMicient)market.”)
J'!$*.!/+-.!&6!>J(!+7&C.8!0&?cC.!2&$!?'3.'%+7).!#1&&6!$*+$!)&'2H$.14!&#$%&'!#1%/%'2!3?1%'2!
$*%-!hl!0.+1!#.1%&3!B+-!&C.1#1%/.38!4.+'%'2!$*+$!&#$%&'!-.)).1-8!'&$!7?0.1-8!B.1.!$*.!1.+)!
B%''.1-!*.1.=!M?1.!$*.1.!B.1.!$%4.-!B*.'!C&)+$%)%$0!B+-!71%.A)0!21.+$.1!$*+'!.N#./$.38!
'+4.)0!%'!fggr8!7?$!$*.!)&'2H$.14!3+$+!%-!/&'-%-$.'$!B%$*!$*%-!%4#)%.3!C&)+$%)%$0!&C.1H
.N#./$+$%&'!$*+$!B.cC.!3%-/?--.3=!9.$c-!)&&5!+$!-&4.!4&1.!.N+4#).-t!
Implied Volatility vs. Actual Volatility (GLD)
J'!$*.!/*+1$!+7&C.8!0&?c))!A%'3!$*.!-+4.!C&)+$%)%$0!3+$+!/&4#+1%-&'!6&1!Z9>8!+'!QSI!$*+$!
$1+/5-!$*.!#1%/.!&6!Z&)3!2&%'2!7+/5!$&!fggr=!(2+%'!0&?c))!'&$%/.!$*+$!+/$?+)!C&)+$%)%$0!B+-!
4?/*!).--!$*+'!$*.!4+15.$c-!%4#)%.3!C&)+$%)%$0=!S*.!-#1.+3!6&1!Z9>!7.$B..'!+/$?+)!+'3!
%4#)%.3!3?1%'2!$*%-!#.1%&3!B+-!u=fgp=!
!32
I%'+))08!7.)&B!0&?c))!-..!C&)+$%)%$0!3+$+!6&1!S9S8!+'!QSI!$1+/5%'2!fgs!0.+1!4+$?1%$0!7&'3-!+))!
$*.!B+0!7+/5!$&!fggi=!W.$!+2+%'8!%4#)%.3!C&)+$%)%$0!.N+22.1+$.3!$*.!+/$?+)!4&C.!%'!S9S!70!
u=kjp!&'!+C.1+2.!3?1%'2!$*.!hf!0.+1!#.1%&3=!
Implied Volatility vs. Actual Volatility (TLT)
S*.1.!0&?!*+C.!%$8!$*1..!%'/1.3%7)0!)%U?%3!+'3!#&#?)+1!4+15.$!QSI-!$1+/5%'2!-$&/5-8!
#1./%&?-!4.$+)-8!+'3!7&'3-T!+))!&6!B*%/*!-*&B!$*.!-+4.!%4#)%.3!C&)+$%)%$0!&C.1H.N#./$+$%&'=!
:&'21+$?)+$%&'-8!0&?cC.!'&B!3%-/&C.1.3!$*.!n.32.n!0&?!*+C.!+-!+'!&#$%&'-!$1+3.1T!
/&'-%-$.'$)0!-.))%'2!&#$%&'-!3?.!$&!$*.!&C.1H.N#./$+$%&'!&6!%4#)%.3!C&)+$%)%$0=!I..)-!2&&3!
1%2*$e!W&?!7.$!%$!3&.-m!
Determining Implied Volatility's Ranking
;'&B!$*+$!0&?!5'&B!B*+$!&?1!n.32.n!%-!$1+3%'28!0&?!/+'!+7-&)?$.)0!-.))!&#$%&'-!&'!+!
/&'-%-$.'$!7+-%-!+'3!4+5.!4&'.0!)&'2H$.14=!V?$!B*+$!%6!0&?!B+'$!$&!31+4+$%/+))0!%'/1.+-.!
0&?1!B%'!1+$.8!#1&7+7%)%$0!&6!-?//.--!+'3!#1&A%$-!B*%).!$1+3%'2!).--!&6$.'e!
^.))8!0&?!/+'!70!6&/?-%'2!&'!-.))%'2!&#$%&'-!B*.'!%4#)%.3!C&)+$%)%$0!1.+3%'2-!+1.!*%2*.1!
$*+'!+C.1+2.8!+'3!&?1!n.32.n!%-!4+N%4%d.3=!
J!1.)+$.!$*%-!$&!#%/5%'2!+##).-!61&4!+!$1..=!W&?c1.!61..!$&!#%/5!+))!$*.!+##).-!0&?!B+'$8!+'3!
$*.0c1.!+))!1%#.!+'3!$+-$.!21.+$8!7?$!%$c-!$*.!)&B!*+'2%'2!61?%$!$*+$!%-!.+-%.-$!$&!#%/5=!
!33
M%'/.!B.!5'&B!$*+$!B.!*+C.!$&!7.!'.$!&#$%&'H-.)).1-!B*.'!%4#)%.3!C&)+$%)%$0!%-!*%2*8!B.!
'..3!$&!*+C.!-&4.!B+0!&6!3.$.14%'%'2!%4#)%.3!C&)+$%)%$0c-!1.)+$%C.!1+'5%'2=!(!B+0!&6!
+//.--%'2!%6!$*.!%4#)%.3!C&)+$%)%$0!1.+3%'2!B.!+1.!)&&5%'2!+$!%-!1.+))0!*%2*!&1!'&$e!!
9?/5%)08!B.!*+C.!+'!%'3%/+$&1!$*+$!B.!?-.!$&!3.$.14%'.!%6!%4#)%.3!C&)+$%)%$0!%-!1%#.!6&1!-.))%'2!
&1!$&&!)&B!+'3!-*&?)3!7.!+C&%3.38!+'3!%$R-!/+)).3!%4#)%.3!C&)+$%)%$0!1+'5!DJ_!K+'5G=!
S*.!2&+)!&6!1+'5%'2!%4#)%.3!C&)+$%)%$0!%-!$&!3.$.14%'.!B*.'!&#$%&'!#1%/%'2!%-!1.)+$%C.)0!
.N#.'-%C.!/&4#+1.3!$&!%$-!*%-$&1%/+)!#+-$!6&1!+!2%C.'!-./?1%$0=!_&)+$%)%$0!&7-.1C.3!%'!+!Z&)3!
QSI!DZ9>G!4%2*$!*+C.!+!1+3%/+))0!3%66.1.'$!1+'2.!&1!#1&A%).!$*+'!C&)+$%)%$0!&7-.1C.3!%'!
(##).!-$&/5!D((@9G!&1!Z&&2).!-$&/5!DZ""Z9G!&1!QNN&'!\&7%).!DY"\G=!
“Applying)IV)Rank)helps)us)compare)stocks)
we)are)analyzing)on)an)apples)to)apples)basis)
-)making)it)easier)to)see)which)stock)has)the)
highest)volatility)and)therefore)is)the)best)
candidate)to)sell)options)on.”)
I&1!.N+4#).8!).$c-!+--?4.!((@9c-!J_!1%2*$!'&B!%-!#1%/%'2!%'!+!ugp!.N#./$.3!4&C.!#.1!0.+1!
+'3!Y"\c-!J_!%-!&')0!#1%/%'2!%'!+!lgp!.N#./$.3!4&C.!#.1!0.+1=!"'!$*.!&?$-%3.8!%$!4%2*$!
-..4!$*+$!((@9!*+-!*%2*.1!J_!$*+'!Y"\!+'3!%-!+!4?/*!7.$$.1!/+'3%3+$.!6&1!-.))%'2!&#$%&'-=!
V?$!*&B!3&!B.!5'&B!%6!+!1.+3%'2!&6!ugp!J_!%'!((@9!%-!1.+))0!*%2*e!((@9!%-!+!)+12.!
$./*'&)&20!/&4#+'0!+'3!Y"\!%-!+!)+12.!.'.120!/&4#+'0=!W&?!4%2*$!.N#./$!$./*'&)&20!
/&4#+'%.-!$&!7.!+!)%$$).!4&1.!C&)+$%).!$*+'!.'.120!/&4#+'%.-=!
9.$c-!3%2!+!)%$$).!3..#.1!70!+##)0%'2!+'!J_!1+'5t!
^*+$!%6!J!$&)3!0&?!$*+$!&C.1!$*.!)+-$!0.+1!((@9!*+-!-..'!%$-!J_!1.+3%'2!+-!)&B!+-!igp!+'3!+-!
*%2*!+-!kgp=!S*+$!4.+'-!$*+$!$*.!/?11.'$!1.+3%'2!&6!ugp!J_!%-!1%2*$!%'!$*.!4%33).!&6!$*.!
*%-$&1%/+)!1+'2.!1%2*$e!X-%'2!$*%-!1+'2.8!).$c-!+##)0!+'!+7-&)?$.!1+'5%'2!-/+).T!61&4!h!$&!hgg=!
S*.!1.+3%'2!&6!igp!%-!1.)+$%C.!$&!+!1+'5%'2!&6!h!&'!$*.!-/+).!-%'/.!%$c-!$*.!)&B.-$!1.+3%'2!
&7-.1C.3!&C.1!$*.!)+-$!0.+1=!"'!$*.!&$*.1!*+'38!$*.!1.+3%'2!&6!kgp!%-!1.)+$%C.!$&!+!1+'5%'2!
&6!hgg!&'!$*.!-/+).!-%'/.!%$c-!$*.!*%2*.-$!1.+3%'2!&7-.1C.3!&C.1!$*.!)+-$!0.+1=!
!34
I%'+))08!&?1!/?11.'$!J_!1.+3%'2!&6!ugp!-%$-!+$!$*.!ug$*!1+'5!-%'/.!%$c-!%'!$*.!4%33).!&6!$*%-!
*%-$&1%/+)!1+'2.=!<&B!3&!0&?!-..!*&B!?-%'2!+!1+'5%'2!%'3%/+$&1!*.)#-!71%'2-!-&4.!/&'$.N$!
$&!((@9c-!%4#)%.3!C&)+$%)%$0e!
^*%).!+'!+7-&)?$.!1.+3%'2!&6!ugp!J_!4%2*$!-..4!*%2*!$&!0&?8!%$c-!+/$?+))0!#1.$$0!+C.1+2.!6&1!
((@9!4.+'%'2!$*+$!&#$%&'!#1%/%'2!%'!((@9!%-!+C.1+2.!+-!B.))=!<&$!-%2'%A%/+'$)0!)&B!&1!*%2*!
+$!$*.!4&4.'$=!
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“The)50th)IV)Rank)becomes)the)‘line)in)the)
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strategies)and)net)option)buying)strategies.”)
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!36
#3 - Targeting The Best
Options Strategy for You
Focusing On The Optimal Strategy To Trade
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!38
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Option Payoff Diagrams
Correctly Reading The Strategy P&L Charts
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!41
Quick Review
Terms & Definitions
Understanding Options Trading “Lingo”
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!42
Quick Review
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!43
!
High IV Bullish!
Options Strategies
If you are bullish on the underlying direction of the stock
and implied volatility is over the 50th percentile you’ll
choose from the following options strategies…!
Put Credit Spread
Bullish Outlook & High Volatility…
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!45
Option Strategy
The Trade Setup
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Optimal Timeline
Q'$.1%'2!$*.-.!$1+3.-!lgHkg!3+0-!?'$%)!.N#%1+$%&'!%-!#1.6.11.3!+'3!-*&?)3!
+))&B!0&?!$&!/&))./$!.'&?2*!#1.4%?4!+6$.1!/&44%--%&'!/&-$-!$&!4+5.!$*.!
$1+3.!B&1$*!#)+/%'2=!
Volatility Impact
M%'/.!B.!+1.!'.$!-.)).1-!&6!&#$%&'-8!0&?!-*&?)3!7.!.'$.1%'2!$*%-!$1+3.!&')0!
B*.'!J_!K+'5!%-!+7&C.!ug=!())!.)-.!7.%'2!.U?+)8!6+))%'2!J_!B%))!2.'.1+))0!*.)#!
$*%-!#&-%$%&'!B*%).!1%-%'2!J_!B%))!2.'.1+))0!*?1$!$*%-!#&-%$%&'=!
Time Decay
S%4.!3./+0!&1!S*.$+!B&15-!#&-%$%C.)0!6&1!?-!+-!#+1$!&6!$*%-!#&-%$%&'=!(-!'.$!
-.)).1-!B.!.N#./$!+))!&1!#+1$!&6!$*.!$1+3.!$&!.N#%1.!B&1$*).--!+$!.N#%1+$%&'=!
Risk Management
"#$%4+)!#&-%$%&'!-%d%'2!6&1!&#$%&'!-.))%'2!-$1+$.2%.-!)%5.!$*%-!/+'!7.!-/+).3!?#!
-)%2*$)0!7.$B..'!lHup!&6!0&?1!.U?%$0!7+)+'/.!#.1!$1+3.!&6!'&$%&'+)!1%-5=!
Profit Targets
J6!0&?1!#&-%$%&'!-*&B-!+!#1&A%$!'.+1!ugp!&6!$*.!4+N!#&$.'$%+)!2+%'8!0&?!-*&?)3!
)&&5!$&!/)&-.!$*.!#&-%$%&'!.+1)0!+'3!)&/5!%'!#1&A%$-=!
Break-Even Point(s)
M*&1$!#?$!-$1%5.!4%'?-!'.$!/1.3%$=!
!46
Put Credit Spread Options Strategy
Short Naked Put
Bullish Outlook & High Volatility…
(!-*&1$!#?$!%-!+'!?'3.A%'.3!1%-5!$1+3.!B*.1.!0&?!+1.!-.))%'2!&#$%&'-!7.)&B!$*.!/?11.'$!
4+15.$!#1%/.!&6!$*.!-$&/5!+'$%/%#+$%'2!7&$*!+!31&#!%'!J_!&1!$*.!-$&/5!$&!1.4+%'!+7&C.!0&?1!
-$1%5.!#1%/.!+$!.N#%1+$%&'=!
S*%-!%-!&'.!&6!$*.!5.0!7?%)3%'2!7)&/5-!6&1!%'/&4.!+'3!#1.4%?4!-.))%'2!-$1+$.2%.-!7./+?-.!
0&?!/&))./$!+!/1.3%$!6&1!.'$.1%'2!$*.!$1+3.!+'3!$0#%/+))0!*+C.!+!C.10!*%2*!#1&7+7%)%$0!&6!
-?//.--!&C.1+))=!
!47
Option Strategy
The Trade Setup
M.))!h!"S\!@?$!7.)&B!$*.!4+15.$!6&1!+!/1.3%$=!
Optimal Timeline
Q'$.1%'2!$*.-.!$1+3.-!lgHkg!3+0-!?'$%)!.N#%1+$%&'!%-!#1.6.11.3!+'3!-*&?)3!
+))&B!0&?!$&!/&))./$!.'&?2*!#1.4%?4!+6$.1!/&44%--%&'!/&-$-!$&!4+5.!$*.!
$1+3.!B&1$*!#)+/%'2=!
Volatility Impact
M%'/.!B.!+1.!'.$!-.)).1-!&6!&#$%&'-8!0&?!-*&?)3!7.!.'$.1%'2!$*%-!$1+3.!&')0!
B*.'!J_!K+'5!%-!+7&C.!ug=!())!.)-.!7.%'2!.U?+)8!6+))%'2!J_!B%))!2.'.1+))0!*.)#!
$*%-!#&-%$%&'!B*%).!1%-%'2!J_!B%))!2.'.1+))0!*?1$!$*%-!#&-%$%&'=!
Time Decay
S%4.!3./+0!&1!S*.$+!B&15-!#&-%$%C.)0!6&1!?-!+-!#+1$!&6!$*%-!#&-%$%&'=!(-!'.$!
-.)).1-!B.!.N#./$!+))!&1!#+1$!&6!$*.!$1+3.!$&!.N#%1.!B&1$*).--!+$!.N#%1+$%&'=!
Risk Management
^%$*!?'3.A%'.3!1%-5!-$1+$.2%.-8!0&?!B+'$!$&!7.!+!)%$$).!4&1.!/+?$%&?-=!())&/+$.!
7.$B..'!hHfp!&6!.U?%$0!#.1!$1+3.!7+-.3!&'!%'%$%+)!4+12%'!1.U?%1.4.'$-=!
Profit Targets
J6!0&?1!#&-%$%&'!-*&B-!+!#1&A%$!'.+1!ugp!&6!$*.!4+N!#&$.'$%+)!2+%'8!0&?!-*&?)3!
)&&5!$&!/)&-.!$*.!#&-%$%&'!.+1)0!+'3!)&/5!%'!#1&A%$-=!
Break-Even Point(s)
M$1%5.!#1%/.!4%'?-!/1.3%$!1./.%C.3=!
!48
Short Naked Put Options Strategy
Put Broken Wing Butterfly
Bullish Outlook & High Volatility…
(!#?$!71&5.'HB%'2!-#1.+3!%-!+'!+3C+'/.3!-$1+$.20!B*.1.70!0&?!$+5.!+!$1+3%$%&'+)!7?$$.1A)0!
-#1.+3!7.)&B!$*.!4+15.$!+'3!-5%#!h!-$1%5.!$&!/1.+$.!+'!?'7+)+'/.3!-#1.+3=!
S*.-.!-$1+$.2%.-!+1.!$0#%/+))0!3&'.!6&1!+!'.$!/1.3%$!B%$*!$*.!2&+)!&6!*+C%'2!'&!1%-5!$&!$*.!
?#-%3.=!M5%##%'2!+!-$1%5.!+))&B-!0&?!3&!$&!$*%-!7./+?-.!0&?!7?0!+!6?1$*.1!"S\!#?$!&#$%&'!+$!
+!/*.+#.1!#1%/.!B*%/*!1.3?/.-!$*.!&C.1+))!/&-$!&6!$*.!-$1+$.20=!
!49
Option Strategy
The Trade Setup
V?0!h!JS\!@?$T!M.))!f!"S\!@?$-!'.+1!$*.!(S\!&#$%&'-T!M5%#!M$1%5.!+'3!V?0!h!
"S\!@?$=!J6!#&--%7).!$*.!$1+3.!%-!3&'.!6&1!+!'.$!/1.3%$=!
Optimal Timeline
Q'$.1%'2!$*.-.!$1+3.-!lgHkg!3+0-!?'$%)!.N#%1+$%&'!%-!#1.6.11.3!+'3!-*&?)3!
+))&B!0&?!$&!/&))./$!.'&?2*!#1.4%?4!+6$.1!/&44%--%&'!/&-$-!$&!4+5.!$*.!
$1+3.!B&1$*!#)+/%'2=!
Volatility Impact
M%'/.!B.!+1.!'.$!-.)).1-!&6!&#$%&'-8!0&?!-*&?)3!7.!.'$.1%'2!$*%-!$1+3.!&')0!
B*.'!J_!K+'5!%-!+7&C.!ug=!())!.)-.!7.%'2!.U?+)8!6+))%'2!J_!B%))!2.'.1+))0!*.)#!
$*%-!#&-%$%&'!B*%).!1%-%'2!J_!B%))!2.'.1+))0!*?1$!$*%-!#&-%$%&'=!
Time Decay
S%4.!3./+0!&1!S*.$+!B&15-!#&-%$%C.)0!6&1!?-!+-!#+1$!&6!$*%-!#&-%$%&'=!(-!'.$!
-.)).1-!B.!.N#./$!+))!&1!#+1$!&6!$*.!$1+3.!$&!.N#%1.!B&1$*).--!+$!.N#%1+$%&'=!
Risk Management
"#$%4+)!#&-%$%&'!-%d%'2!6&1!&#$%&'!-.))%'2!-$1+$.2%.-!)%5.!$*%-!/+'!7.!-/+).3!?#!
-)%2*$)0!7.$B..'!lHup!&6!0&?1!.U?%$0!7+)+'/.!#.1!$1+3.!&6!'&$%&'+)!1%-5=!
Profit Targets
J6!0&?1!#&-%$%&'!-*&B-!+!#1&A%$!'.+1!jup!&6!$*.!4+N!#&$.'$%+)!2+%'8!0&?!-*&?)3!
)&&5!$&!/)&-.!$*.!#&-%$%&'!.+1)0!+'3!)&/5!%'!#1&A%$-=!
Break-Even Point(s)
SB&!VQ@-=!hG
Custom Naked Put
Bullish Outlook & High Volatility…
(!/?-$&4!'+5.3!#?$!%-!+'!+3C+'/.3!-$1+$.20!/1.+$.3!70!/&47%'%'2!+!-*&1$!/1.3%$!/+))!-#1.+3!
+7&C.!$*.!4+15.$!B%$*!+!-*&1$!'+5.3!#?$!7.)&B!$*.!4+15.$=!S*.-.!-$1+$.2%.-!#1&A%$!61&4!
6+))%'2!J_!+'3!+!7?))%-*H'.?$1+)!&?$)&&5!&'!$*.!-$&/5=!
S*.!-*&1$!/1.3%$!/+))!-#1.+3!%-!+33.3!$&!%'/1.+-.!$*.!&C.1+))!/1.3%$!1./.%C.3!&'!$*.!.'$%1.!
-$1+$.208!+'3!B*.'!3&'.!6&1!+!/1.3%$!21.+$.1!$*+'!$*.!B%3$*!&6!$*.!/1.3%$!/+))!-#1.+3!-$1%5.!
#1%/.-8!0&?!B&?)3!*+C.!'&!1%-5!$&!$*.!?#-%3.=!
!51
Option Strategy
The Trade Setup
M.))!h!"S\!@?$T!M.))!h!"S\!:+))T!V?0!h!"S\!:+))!+$
!
Low IV Bullish!
Options Strategies
If you are bullish on the underlying direction of the stock
but implied volatility is under the 50th percentile you’ll
choose from the following options strategies…!
Call Debit Spread
Bullish Outlook & Low Volatility…
V?))!/+))!3.7%$!-#1.+3-!+1.!-$1+$.2%.-!$*+$!+1.!3.-%2'.3!$&!#1&A%$!61&4!+!&'.HB+0!3%1./$%&'+)!
4&C.!%'!$*.!?'3.1)0%'2!-$&/5!*%2*.1=!S*.0!+)-&!4%2*$!#1&A%$!D$*&?2*!%-!'&$!+-!)%5.)0G!61&4!
%'/1.+-%'2!%4#)%.3!C&)+$%)%$0=!
S*.-.!+1.!2.'.1+))0!)&B!#1&7+7%)%$0!$1+3.-!7./+?-.!$*+$!.'3!?#!7.%'2!ugHug!7.$-!&'!$*.!
?'3.1)0%'2!3%1./$%&'=!(-!+!1.-?)$!B.!3&!'&$!$1+3.!$*.-.!$0#.-!&6!-$1+$.2%.-!&6$.'!%'!&?1!
#&1$6&)%&!+'3!B%))!&//+-%&'+))0!?-.!$*.4!6&1!1.7+)+'/%'2!#?1#&-.-=!
!54
Option Strategy
The Trade Setup
V?0!h!JS\!:+))T!M.))!h!"S\!:+))!+$
Call Calendar Spread
Bullish Outlook & Low Volatility…
9&'2!/+))!/+).'3+1!-#1.+3-!#1&A%$!61&4!+!-)%2*$)0!*%2*.1!4&C.!?#!%'!$*.!?'3.1)0%'2!-$&/5!%'!
+!2%C.'!1+'2.=!:+).'3+1!-#1.+3-!)&-.!%6!$*.!?'3.1)0%'2!4&C.-!$&&!6+1!%'!.%$*.1!3%1./$%&'=!S*.!
4+N%4?4!)&--!%-!$*.!3.7%$!#+%38!?#!?'$%)!$*.!61&'$H4&'$*!&#$%&'!0&?!-&)3!.N#%1.-=!
S*%-!$1+3.!%-!7.-$!?-.3!B*.'!%4#)%.3!C&)+$%)%$0!%-!)&B!+'3!B*.'!$*.1.!%-!%4#)%.3!C&)+$%)%$0!
n-5.Bn!7.$B..'!$*.!4&'$*-!?-.38!-#./%A%/+))0!B*.'!$*.!'.+1H4&'$*!-&)3!*+-!+!*%2*.1!
%4#)%.3!C&)+$%)%$0!$*+'!$*.!)+$.1H4&'$*!7&?2*$=!
!56
Option Strategy
The Trade Setup
M.))!h!"S\!:+))!%'!$*.!I1&'$!\&'$*T!V?0!h!"S\!:+))!%'!$*.!V+/5!\&'$*!+$!$*.!
M+4.!M$1%5.!@1%/.=!S*.!/&47%'+$%&'!&6!&#$%&'-!-*&?)3!1.-?)$!%'!+!'.$!3.7%$=!
Optimal Timeline
W&?!-*&?)3!)&&5!$&!$+12.$!$*.!61&'$!4&'$*!&#$%&'-!+$!).+-$!fgs!3+0-!&?$!$&!2%C.!
0&?1-.)6!.'&?2*!1&&4!6&1!#1.4%?4!3./+0=!('0$*%'2!-*&1$.1!$*+'!fg!3+0-!%'!
$*.!61&'$!4&'$*!&1!)&'2.1!$*+'!iu!3+0-!-*&?)3!7.!+C&%3.3=!
Volatility Impact
M%'/.!B.!+1.!'.$!7?0.1-!&6!&#$%&'-8!0&?!-*&?)3!7.!.'$.1%'2!$*%-!$1+3.!&')0!
B*.'!J_!K+'5!%-!7.)&B!ug=!())!.)-.!7.%'2!.U?+)8!1+%-%'2!J_!B%))!2.'.1+))0!*.)#!
$*%-!#&-%$%&'!B*%).!6+))%'2!J_!B%))!2.'.1+))0!*?1$!$*%-!#&-%$%&'=!
Time Decay
S%4.!3./+0!&1!S*.$+!B&15-!#&-%$%C.)0!6&1!?-!+-!#+1$!&6!$*%-!#&-%$%&'!+-!)&'2!+-!
$*.!-$&/5!1.4+%'-!1+'2.!7&?'3!B*%/*!4+N%4%d.-!$*.!4&'$*)0!/&'$1+/$!-5.B=!
Risk Management
"#$%4+)!#&-%$%&'!-%d%'2!6&1!&#$%&'!7?0%'2!-$1+$.2%.-!)%5.!$*%-!-*&?)3!7.!
/&'-%3.1+7)0!-4+))!+$!).--!$*+'!hp!&6!0&?1!#&1$6&)%&!.U?%$0!7+)+'/.=!
Profit Targets
Z%C.'!$*.!)&B!#1&7+7%)%$0!'+$?1.!&6!$*%-!#&-%$%&'8!.+1)%.1!#1&A%$!$+5%'2!-*&?)3!
7.!3&'.!7.$B..'!fuHugp!&6!$*.!4+N!#&$.'$%+)!2+%'=!
Break-Even Point(s)
_+1%.-!3.#.'3%'2!&'!-$1%5.!#1%/.-!+'3!C&)+$%)%$0=!
!57
Call Calendar Spread Options Strategy
Call (Ratio) Backspread
Bullish Outlook & Low Volatility…
(!V?))!:+))!V+/5-#1.+3!%-!-%4%)+1!$&!+!)&'2!/+))!&#$%&'!+-!6+1!+-!0&?1!&?$)&&5!&'!$*.!
?'3.1)0%'2!-$&/5!7?$!0&?!?-.!$*.!-+).!+'3!#?1/*+-.!&6!3%66.1.'$!1+$%&-!&6!&#$%&'-!$&!#1&$./$!
+2+%'-$!+!#&--%7).!4&C.!)&B.1!%'!$*.!-$&/5!#1%/.=!
S*.-.!+1.!&6$.'!1.6.11.3!$&!+-!E1+$%&!-#1.+3-F!7./+?-.!0&?!+1.!7?0%'2!+'3!-.))%'2!&#$%&'-!+$!
%'$.1C+)-!&6!h`f!&1!f`l!.$/=!^%$*!$*%-!#+1$%/?)+1!-$1+$.20!0&?!B&?)3!-.))!+!/+))!&#$%&'!+'3!
$*.'!7?0!f!*%2*.1!-$1%5.!/+))-!4+5%'2!0&?!-$%))!+!'.$!7?0.1!&6!&#$%&'-!+$!+!1+$%&!&6!h`f=!
!58
Option Strategy
The Trade Setup
M.))!h!(S\!:+))T!V?0!f!"S\!:+))-!+$
Put Diagonal Spread
Bullish Outlook & Low Volatility…
9&'2!#?$!3%+2&'+)!-#1.+3-!#1&A%$!61&4!+!*%2*.1!4&C.!?#!%'!$*.!?'3.1)0%'2!-$&/5!%'!+!2%C.'!
1+'2.=!>%+2&'+)!-#1.+3-!/&47%'.!$*.!3%1./$%&'+)!'+$?1.!&6!#?$!/1.3%$!-#1.+3!B%$*!$*.!
C&)+$%)%$0!%4#+/$!&6!+!/+).'3+1!-#1.+3=!J6!.-$+7)%-*.3!6&1!+!'.$!3.7%$8!1%-5!%-!)%4%$.3!$&!$*.!
3%66.1.'/.!7.$B..'!$*.!-$1%5.!#1%/.-8!#)?-!$*.!'.$!3.7%$!#+%3=!
S*%-!$1+3.!%-!7.-$!?-.3!B*.'!%4#)%.3!C&)+$%)%$0!%-!)&B!+'3!B*.'!$*.1.!%-!%4#)%.3!C&)+$%)%$0!
n-5.Bn!7.$B..'!$*.!4&'$*-!?-.38!-#./%A%/+))0!B*.'!$*.!'.+1H4&'$*!-&)3!*+-!+!*%2*.1!
%4#)%.3!C&)+$%)%$0!$*+'!$*.!)+$.1H4&'$*!7&?2*$=!
!60
Option Strategy
The Trade Setup
M.))!h!"S\!@?$!%'!$*.!I1&'$!\&'$*T!V?0!h!"S\!@?$!%'!$*.!V+/5!\&'$*!+$!+!
9&B.1!M$1%5.!@1%/.=!S*.!/&47%'+$%&'!&6!&#$%&'-!-*&?)3!1.-?)$!%'!+!'.$!3.7%$=!
Optimal Timeline
W&?!-*&?)3!)&&5!$&!$+12.$!$*.!61&'$!4&'$*!&#$%&'-!+$!).+-$!fgs!3+0-!&?$!$&!2%C.!
0&?1-.)6!.'&?2*!1&&4!6&1!#1.4%?4!3./+0=!('0$*%'2!-*&1$.1!$*+'!fg!3+0-!%'!
$*.!61&'$!4&'$*!&1!)&'2.1!$*+'!iu!3+0-!-*&?)3!7.!+C&%3.3=!
Volatility Impact
M%'/.!B.!+1.!'.$!7?0.1-!&6!&#$%&'-8!0&?!-*&?)3!7.!.'$.1%'2!$*%-!$1+3.!&')0!
B*.'!J_!K+'5!%-!7.)&B!ug=!())!.)-.!7.%'2!.U?+)8!1+%-%'2!J_!B%))!2.'.1+))0!*.)#!
$*%-!#&-%$%&'!B*%).!6+))%'2!J_!B%))!2.'.1+))0!*?1$!$*%-!#&-%$%&'=!
Time Decay
S%4.!3./+0!&1!S*.$+!B&15-!#&-%$%C.)0!6&1!?-!+-!#+1$!&6!$*%-!#&-%$%&'!+-!)&'2!+-!
$*.!-$&/5!1.4+%'-!1+'2.!7&?'3!B*%/*!4+N%4%d.-!$*.!4&'$*)0!/&'$1+/$!-5.B=!
Risk Management
"#$%4+)!#&-%$%&'!-%d%'2!6&1!&#$%&'!7?0%'2!-$1+$.2%.-!)%5.!$*%-!-*&?)3!7.!
/&'-%3.1+7)0!-4+))!+$!).--!$*+'!hp!&6!0&?1!#&1$6&)%&!.U?%$0!7+)+'/.=!
Profit Targets
Z%C.'!$*.!)&B!#1&7+7%)%$0!'+$?1.!&6!$*%-!#&-%$%&'8!.+1)%.1!#1&A%$!$+5%'2!-*&?)3!
7.!3&'.!7.$B..'!fuHugp!&6!$*.!4+N!#&$.'$%+)!2+%'=!
Break-Even Point(s)
_+1%.-!3.#.'3%'2!&'!-$1%5.!#1%/.-!+'3!C&)+$%)%$0=!
!61
Put Diagonal Spread Options Strategy
!
High IV Neutral!
Options Strategies
If you are neutral on the underlying direction of the
stock and implied volatility is over the 50th percentile
you’ll choose from the following options strategies…!
Short Straddle
Neutral Outlook & High Volatility…
M*&1$!-$1+33).-!+1.!+221.--%C.!#1.4%?4!-.))%'2!-$1+$.2%.-!$*+$!4+N%4%d.-!$*.!/1.3%$!
1./.%C.3!+'3!%-!7.-$!?-.3!B%$*!?)$1+H*%2*!%4#)%.3!C&)+$%)%$0!1+'5%'2!-$&/5-=!
V./+?-.!&6!$*.!?'3.A%'.3!1%-5!'+$?1.!&6!$*%-!-$1+$.20!%$R-!7.-$!$&!?-.!$*%-!-#+1%'2)0!D+2+%'!
&')0!B%$*!21.+$!-.$?#-G=!^.!B%))!$0#%/+))0!&')0!$1+3.!h!$&!f!-$1+33).-!%'!&?1!#&1$6&)%&!+$!+!
$%4.!$&!/&'-.1C.!$*.!*%2*!4+12%'!?-.3!70!$*.-.!$1+3.-=!
!63
Option Strategy
The Trade Setup
M.))!h!(S\!@?$T!M.))!h!(S\!:+))!+$!M+4.!M$1%5.!@1%/.=!S*.!1.-?)$!&6!7&$*!-+).-!%-!
+!'.$!/1.3%$=!
Optimal Timeline
Q'$.1%'2!$*.-.!$1+3.-!lgHkg!3+0-!?'$%)!.N#%1+$%&'!%-!#1.6.11.3!+'3!-*&?)3!
+))&B!0&?!$&!/&))./$!.'&?2*!#1.4%?4!+6$.1!/&44%--%&'!/&-$-!$&!4+5.!$*.!
$1+3.!B&1$*!#)+/%'2=!
Volatility Impact
M%'/.!B.!+1.!'.$!-.)).1-!&6!&#$%&'-8!0&?!-*&?)3!7.!.'$.1%'2!$*%-!$1+3.!&')0!
B*.'!J_!K+'5!%-!+7&C.!ug=!())!.)-.!7.%'2!.U?+)8!6+))%'2!J_!B%))!2.'.1+))0!*.)#!
$*%-!#&-%$%&'!B*%).!1%-%'2!J_!B%))!2.'.1+))0!*?1$!$*%-!#&-%$%&'=!
Time Decay
S%4.!3./+0!&1!S*.$+!B&15-!#&-%$%C.)0!6&1!?-!+-!#+1$!&6!$*%-!#&-%$%&'=!(-!'.$!
-.)).1-!B.!.N#./$!+))!&1!#+1$!&6!$*.!$1+3.!$&!.N#%1.!B&1$*).--!+$!.N#%1+$%&'=!
Risk Management
^%$*!?'3.A%'.3!1%-5!-$1+$.2%.-8!0&?!B+'$!$&!7.!+!)%$$).!4&1.!/+?$%&?-=!())&/+$.!
7.$B..'!hHfp!&6!.U?%$0!#.1!$1+3.!7+-.3!&'!%'%$%+)!4+12%'!1.U?%1.4.'$-=!
Profit Targets
J6!0&?1!#&-%$%&'!-*&B-!+!#1&A%$!'.+1!fup!&6!$*.!4+N!#&$.'$%+)!2+%'8!0&?!-*&?)3!
)&&5!$&!/)&-.!$*.!#&-%$%&'!.+1)0!+'3!)&/5!%'!#1&A%$-=!
Break-Even Point(s)
SB&!VQ@-=!hG!M*&1$!-$1%5.!#)?-!'.$!/1.3%$=!fG!M*&1$!-$1%5.!4%'?-!'.$!/1.3%$=!
!64
Short Straddle Options Strategy
Short Strangle
Neutral Outlook & High Volatility…
S*.!-*&1$!-$1+'2).!/&?)3!#&--%7)0!7.!$*.!?)$%4+$.!-$1+$.20!6&1!&#$%&'-!$1+3.1-=!S*&?2*!%$!
1.U?%1.-!4&1.!/+#%$+)!%'!$*.!6&14!&6!4+12%'!B%$*!'+5.3!&#$%&'-!&'!.%$*.1!-%3.8!$*.-.-!
-$1+$.2%.-!&66.1!$*.!*%2*.-$!#1&7+7%)%$0!&6!-?//.--!&6!+'0!$1+3.!+'3!2.'.1+))0!$*.!*%2*.-$!
@q9!)&'2!$.14=!
S*%-!$1+3.!%-!7.-$!?-.3!B*.'!%4#)%.3!C&)+$%)%$0!%-!*%2*!+'3!B*.'!0&?!+1.!)&&5%'2!6&1!$*.!
-$&/5!$&!4&C.!%'!+!3.A%'.3!1+'2.!&C.1!$*.!$1+3%'2!$%4.)%'.=!^.!/+'!2.'.1+))0!#)+/.!$*.-.!
$1+3.!B%$*!4&1.!$*+'!+!jgp!/*+'/.!&6!-?//.--!.+/*!4&'$*=!
!65
Option Strategy
The Trade Setup
M.))!h!"S\!@?$T!M.))!h!"S\!:+))!+$!I+1!"?$!M$1%5.!@1%/.-=!S*.!1.-?)$!&6!7&$*!
-+).-!%-!+!'.$!/1.3%$==!
Optimal Timeline
Q'$.1%'2!$*.-.!$1+3.-!lgHkg!3+0-!?'$%)!.N#%1+$%&'!%-!#1.6.11.3!+'3!-*&?)3!
+))&B!0&?!$&!/&))./$!.'&?2*!#1.4%?4!+6$.1!/&44%--%&'!/&-$-!$&!4+5.!$*.!
$1+3.!B&1$*!#)+/%'2=!
Volatility Impact
M%'/.!B.!+1.!'.$!-.)).1-!&6!&#$%&'-8!0&?!-*&?)3!7.!.'$.1%'2!$*%-!$1+3.!&')0!
B*.'!J_!K+'5!%-!+7&C.!ug=!())!.)-.!7.%'2!.U?+)8!6+))%'2!J_!B%))!2.'.1+))0!*.)#!
$*%-!#&-%$%&'!B*%).!1%-%'2!J_!B%))!2.'.1+))0!*?1$!$*%-!#&-%$%&'=!
Time Decay
S%4.!3./+0!&1!S*.$+!B&15-!#&-%$%C.)0!6&1!?-!+-!#+1$!&6!$*%-!#&-%$%&'=!(-!'.$!
-.)).1-!B.!.N#./$!+))!&1!#+1$!&6!$*.!$1+3.!$&!.N#%1.!B&1$*).--!+$!.N#%1+$%&'=!
Risk Management
^%$*!?'3.A%'.3!1%-5!-$1+$.2%.-8!0&?!B+'$!$&!7.!+!)%$$).!4&1.!/+?$%&?-=!())&/+$.!
7.$B..'!hHfp!&6!.U?%$0!#.1!$1+3.!7+-.3!&'!%'%$%+)!4+12%'!1.U?%1.4.'$-!
Profit Targets
J6!0&?1!#&-%$%&'!-*&B-!+!#1&A%$!'.+1!ugp!&6!$*.!4+N!#&$.'$%+)!2+%'8!0&?!-*&?)3!
)&&5!$&!/)&-.!$*.!#&-%$%&'!.+1)0!+'3!)&/5!%'!#1&A%$-=!
Break-Even Point(s)
SB&!VQ@-=!hG!M*&1$!/+))!-$1%5.!#)?-!'.$!/1.3%$=!fG!M*&1$!#?$!-$1%5.!4%'?-!'.$!
/1.3%$=!
!66
Short Strangle Options Strategy
Short Iron Condor
Neutral Outlook & High Volatility…
J1&'!/&'3&1-!+1.!&'.!&6!&?1!4&-$!1.)%+7).!+'3!6+C&1%$.!&#$%&'-!-$1+$.2%.-=!(!/&47%'+$%&'!&6!
-.))%'2!+!/1.3%$!#?$!-#1.+3!+'3!/1.3%$!/+))!-#1.+3!$*.-.!7%13-!#1&A%$!61&4!$*.!-$&/5!
1.4+%'%'2!1+'2.!7&?'3!+'3!+!31&#!%'!%4#)%.3!C&)+$%)%$0=!
J'!&13.1!$&!4+5.!$*.-.!*%2*!#1&7+7%)%$0!$1+3.-!B&15!B.!-?22.-$!-.))%'2!$*.!-*&1$!-$1%5.-!&'!
.%$*.1!-%3.!+$!$*.!h!M>!).C.)!D&1!hup!#1&7=!JS\!).C.)G=!S*%-!B%))!/1.+$.!+##1&N%4+$.)0!+!jgp!
/*+'/.!&6!-?//.--!)&'2H$.14=!
!67
Option Strategy
The Trade Setup
M.))!h!"S\!@?$T!V?0!h!"S\!@?$!+$!9&B.1!M$1%5.T!M.))!h!"S\!:+))T!V?0!h!"S\!
:+))!+$
Short Iron Butterfly
Neutral Outlook & High Volatility…
J1&'!7?$$.1A)%.-!+1.!$*.!1%-5H3.A%'.3!/&?-%'-!&6!-*&1$!-$1+'2).-!+'3!+!#&#?)+1!+)$.1'+$%C.!
-$1+$.20!6&1!JK(!+//&?'$-=!(!/&47%'+$%&'!&6!-.))%'2!(S\!#?$-!+'3!/+))!B%$*!B%3.1!&#$%&'-!
7&?2*$!+$!"S\!-$1%5.-!6&1!#1&$./$%&'8!$*.-.!7%13-!#1&A%$!61&4!$*.!-$&/5!1.4+%'%'2!1+'2.!
7&?'3!+'3!+!31&#!%'!%4#)%.3!C&)+$%)%$0=!
J'!&13.1!$&!4+5.!$*.-.!*%2*!#1&7+7%)%$0!$1+3.!B&15!B.!-?22.-$!7?0%'2!$*.!)&'2!-$1%5.-!D&1!
B%'2-G!+$!$*.!h!M>!).C.)!D&1!hup!#1&7=!JS\!).C.)G!&1!6?1$*.1!&?$!%6!#&--%7).=!S*%-!B%))!/1.+$.!
+##1&N%4+$.)0!+!jgp!/*+'/.!&6!-?//.--!)&'2H$.14=!
!69
Option Strategy
The Trade Setup
M.))!h!(S\!@?$T!V?0!h!"S\!@?$!+$!9&B.1!M$1%5.T!M.))!h!(S\!:+))T!V?0!h!"S\!
:+))!+$
Low IV & Neutral?!
PASS On The Trade!
If you are neutral on the underlying direction of the
stock and implied volatility is below the 50th percentile,
the best trade is actually NOT make any trade at all.
Since you have very little edge with respect to implied
volatility and no assumption on the underlying direction,
skip the setup and find something else - don’t force it.!
!
High IV Bearish!
Options Strategies
If you are bearish on the underlying direction of the
stock and implied volatility is over the 50th percentile
you’ll choose from the following options strategies…!
Call Credit Spread
Bearish Outlook & High Volatility…
V.+1!/+))!/1.3%$!-#1.+3-!+1.!-$1+$.2%.-!$*+$!+1.!3.-%2'.3!$&!#1&A%$!61&4!7&$*!+!&'.HB+0!
3%1./$%&'+)!4&C.!3&B'!%'!$*.!?'3.1)0%'2!-$&/5!+'3!+!31&#!%'!$*.!?'3.1)0%'2!%4#)%.3!
C&)+$%)%$0=!
S*.-.!+1.!*%2*!#1&7+7%)%$0!-$1+$.2%.-!B*.1.!0&?!+1.!+!'.$!-.)).1!&6!&#$%&'-!+7&C.!4+15.$!
#1%/.!+'3!0&?!+1.!)&&5%'2!6&1!$*&-.!&#$%&'-!$&!3./+0!%'!C+)?.!+'3!7./&4.!B&1$*).--!+$!
.N#%1+$%&'8!+))&B%'2!0&?!$&!5..#!$*.!6?))!#1.4%?4!+-!#1&A%$=!
!73
Option Strategy
The Trade Setup
M.))!h!"S\!:+))T!V?0!h!"S\!:+))!+$
Short Naked Call
Bearish Outlook & High Volatility…
(!-*&1$!/+))!%-!+'!?'3.A%'.3!1%-5!$1+3.!B*.1.!0&?!+1.!-.))%'2!&#$%&'-!+7&C.!$*.!/?11.'$!
4+15.$!#1%/.!&6!$*.!-$&/5!+'$%/%#+$%'2!7&$*!+!31&#!%'!%4#)%.3!C&)+$%)%$0!&1!$*.!-$&/5!$&!
1.4+%'!7.)&B!0&?1!-$1%5.!#1%/.=!
S*%-!%-!&'.!&6!$*.!5.0!7?%)3%'2!7)&/5-!6&1!%'/&4.!+'3!#1.4%?4!-.))%'2!-$1+$.2%.-!7./+?-.!
0&?!/&))./$!+!/1.3%$!6&1!.'$.1%'2!$*.!$1+3.!+'3!$0#%/+))0!*+C.!+!C.10!*%2*!#1&7+7%)%$0!&6!
-?//.--!+$!.N#%1+$%&'=!
!75
Option Strategy
The Trade Setup
M.))!h!"S\!:+))!+7&C.!$*.!4+15.$!6&1!+!/1.3%$=!
Optimal Timeline
Q'$.1%'2!$*.-.!$1+3.-!lgHkg!3+0-!?'$%)!.N#%1+$%&'!%-!#1.6.11.3!+'3!-*&?)3!
+))&B!0&?!$&!/&))./$!.'&?2*!#1.4%?4!+6$.1!/&44%--%&'!/&-$-!$&!4+5.!$*.!
$1+3.!B&1$*!#)+/%'2=!
Volatility Impact
M%'/.!B.!+1.!'.$!-.)).1-!&6!&#$%&'-8!0&?!-*&?)3!7.!.'$.1%'2!$*%-!$1+3.!&')0!
B*.'!J_!K+'5!%-!+7&C.!ug=!())!.)-.!7.%'2!.U?+)8!6+))%'2!J_!B%))!2.'.1+))0!*.)#!
$*%-!#&-%$%&'!B*%).!1%-%'2!J_!B%))!2.'.1+))0!*?1$!$*%-!#&-%$%&'=!
Time Decay
S%4.!3./+0!&1!S*.$+!B&15-!#&-%$%C.)0!6&1!?-!+-!#+1$!&6!$*%-!#&-%$%&'=!(-!'.$!
-.)).1-!B.!.N#./$!+))!&1!#+1$!&6!$*.!$1+3.!$&!.N#%1.!B&1$*).--!+$!.N#%1+$%&'=!
Risk Management
^%$*!?'3.A%'.3!1%-5!-$1+$.2%.-8!0&?!B+'$!$&!7.!+!)%$$).!4&1.!/+?$%&?-=!())&/+$.!
7.$B..'!hHfp!&6!.U?%$0!#.1!$1+3.!7+-.3!&'!%'%$%+)!4+12%'!1.U?%1.4.'$-=!
Profit Targets
J6!0&?1!#&-%$%&'!-*&B-!+!#1&A%$!'.+1!ugp!&6!$*.!4+N!#&$.'$%+)!2+%'8!0&?!-*&?)3!
)&&5!$&!/)&-.!$*.!#&-%$%&'!.+1)0!+'3!)&/5!%'!#1&A%$-=!
Break-Even Point(s)
M$1%5.!#1%/.!#)?-!/1.3%$!1./.%C.3=!
!76
Short Naked Call Options Strategy
Call Broken Wing Butterfly
Bearish Outlook & High Volatility…
(!/+))!V^V!-#1.+3!%-!+'!+3C+'/.3!-$1+$.20!B*.1.70!0&?!$+5.!+!$1+3%$%&'+)!7?$$.1A)0!-#1.+3!
+7&C.!$*.!4+15.$!+'3!-5%#!h!-$1%5.!$&!/1.+$.!+'!?'7+)+'/.3!-#1.+3=!
S*.-.!-$1+$.2%.-!+1.!$0#%/+))0!3&'.!6&1!+!'.$!/1.3%$!B%$*!$*.!2&+)!&6!*+C%'2!'&!1%-5!$&!$*.!
3&B'-%3.!-*&?)3!$*.!-$&/5!5..#!6+))%'2=!M5%##%'2!+!-$1%5.!+))&B-!0&?!3&!$&!$*%-!7./+?-.!0&?!
7?0!+!6?1$*.1!"S\!/+))!&#$%&'!+$!+!/*.+#.1!#1%/.!B*%/*!1.3?/.-!$*.!&C.1+))!/&-$!&6!$*.!
-$1+$.20=!
!77
Option Strategy
The Trade Setup
V?0!h!JS\!:+))T!M.))!f!"S\!:+))-!'.+1!$*.!(S\!&#$%&'-T!M5%#!M$1%5.!+'3!V?0!h!
"S\!:+))=!J6!#&--%7).!$*.!$1+3.!%-!3&'.!6&1!+!'.$!/1.3%$=!
Optimal Timeline
Q'$.1%'2!$*.-.!$1+3.-!lgHkg!3+0-!?'$%)!.N#%1+$%&'!%-!#1.6.11.3!+'3!-*&?)3!
+))&B!0&?!$&!/&))./$!.'&?2*!#1.4%?4!+6$.1!/&44%--%&'!/&-$-!$&!4+5.!$*.!
$1+3.!B&1$*!#)+/%'2=!
Volatility Impact
M%'/.!B.!+1.!'.$!-.)).1-!&6!&#$%&'-8!0&?!-*&?)3!7.!.'$.1%'2!$*%-!$1+3.!&')0!
B*.'!J_!K+'5!%-!+7&C.!ug=!())!.)-.!7.%'2!.U?+)8!6+))%'2!J_!B%))!2.'.1+))0!*.)#!
$*%-!#&-%$%&'!B*%).!1%-%'2!J_!B%))!2.'.1+))0!*?1$!$*%-!#&-%$%&'=!
Time Decay
S%4.!3./+0!&1!S*.$+!B&15-!#&-%$%C.)0!6&1!?-!+-!#+1$!&6!$*%-!#&-%$%&'=!(-!'.$!
-.)).1-!B.!.N#./$!+))!&1!#+1$!&6!$*.!$1+3.!$&!.N#%1.!B&1$*).--!+$!.N#%1+$%&'=!
Risk Management
"#$%4+)!#&-%$%&'!-%d%'2!6&1!&#$%&'!-.))%'2!-$1+$.2%.-!)%5.!$*%-!/+'!7.!-/+).3!?#!
-)%2*$)0!7.$B..'!lHup!&6!0&?1!.U?%$0!7+)+'/.!#.1!$1+3.!&6!'&$%&'+)!1%-5=!
Profit Targets
J6!0&?1!#&-%$%&'!-*&B-!+!#1&A%$!'.+1!jup!&6!$*.!4+N!#&$.'$%+)!2+%'8!0&?!-*&?)3!
)&&5!$&!/)&-.!$*.!#&-%$%&'!.+1)0!+'3!)&/5!%'!#1&A%$-=!
Break-Even Point(s)
SB&!VQ@-=!hG!9&B.1!)&'2!/+))!-$1%5.!#)?-!'.$!3.7%$!#+%3!fG
Custom Naked Call
Bearish Outlook & High Volatility…
(!/?-$&4!'+5.3!/+))!%-!+'!+3C+'/.3!-$1+$.20!/1.+$.3!70!/&47%'%'2!+!-*&1$!/1.3%$!#?$!-#1.+3!
7.)&B!$*.!4+15.$!B%$*!+!-*&1$!'+5.3!/+))!+7&C.!$*.!4+15.$=!S*.-.!-$1+$.2%.-!#1&A%$!61&4!
6+))%'2!J_!+'3!+!7.+1%-*H'.?$1+)!&?$)&&5!&'!$*.!-$&/5=!
S*.!-*&1$!/1.3%$!#?$!-#1.+3!%-!+33.3!$&!%'/1.+-.!$*.!&C.1+))!/1.3%$!1./.%C.3!&'!$*.!.'$%1.!
-$1+$.208!+'3!B*.'!3&'.!6&1!+!/1.3%$!21.+$.1!$*+'!$*.!B%3$*!&6!$*.!/1.3%$!#?$!-#1.+3!-$1%5.!
#1%/.-8!0&?!B&?)3!*+C.!'&!1%-5!$&!$*.!3&B'-%3.=!
!79
Option Strategy
The Trade Setup
M.))!h!"S\!:+))T!M.))!h!"S\!@?$T!V?0!h!"S\!@?$!+$!9&B.1!M$1%5.!@1%/.=!J6!
#&--%7).!$*.!$1+3.!%-!3&'.!6&1!+!'.$!/1.3%$!B%3.1!$*+'!/+))!-#1.+3!B%3$*=!
Optimal Timeline
Q'$.1%'2!$*.-.!$1+3.-!lgHkg!3+0-!?'$%)!.N#%1+$%&'!%-!#1.6.11.3!+'3!-*&?)3!
+))&B!0&?!$&!/&))./$!.'&?2*!#1.4%?4!+6$.1!/&44%--%&'!/&-$-!$&!4+5.!$*.!
$1+3.!B&1$*!#)+/%'2=!
Volatility Impact
M%'/.!B.!+1.!'.$!-.)).1-!&6!&#$%&'-8!0&?!-*&?)3!7.!.'$.1%'2!$*%-!$1+3.!&')0!
B*.'!J_!K+'5!%-!+7&C.!ug=!())!.)-.!7.%'2!.U?+)8!6+))%'2!J_!B%))!2.'.1+))0!*.)#!
$*%-!#&-%$%&'!B*%).!1%-%'2!J_!B%))!2.'.1+))0!*?1$!$*%-!#&-%$%&'=!
Time Decay
S%4.!3./+0!&1!S*.$+!B&15-!#&-%$%C.)0!6&1!?-!+-!#+1$!&6!$*%-!#&-%$%&'=!(-!'.$!
-.)).1-!B.!.N#./$!+))!&1!#+1$!&6!$*.!$1+3.!$&!.N#%1.!B&1$*).--!+$!.N#%1+$%&'=!
Risk Management
^%$*!?'3.A%'.3!1%-5!-$1+$.2%.-8!0&?!B+'$!$&!7.!+!)%$$).!4&1.!/+?$%&?-=!())&/+$.!
7.$B..'!hHfp!&6!.U?%$0!#.1!$1+3.!7+-.3!&'!%'%$%+)!4+12%'!1.U?%1.4.'$-=!
Profit Targets
J6!0&?1!#&-%$%&'!-*&B-!+!#1&A%$!'.+1!ugp!&6!$*.!4+N!#&$.'$%+)!2+%'8!0&?!-*&?)3!
)&&5!$&!/)&-.!$*.!#&-%$%&'!.+1)0!+'3!)&/5!%'!#1&A%$-=!
Break-Even Point(s)
M*&1$!/+))!-$1%5.!#1%/.!#)?-!'.$!/1.3%$!1./.%C.3=!
!80
Custom Naked Call Options Strategy
!
Low IV Bearish!
Options Strategies
If you are bearish on the underlying direction of the
stock but implied volatility is below the 50th percentile
you’ll choose from the following options strategies…!
Put Debit Spread
Bearish Outlook & Low Volatility…
V.+1!#?$!3.7%$!-#1.+3-!+1.!-$1+$.2%.-!$*+$!+1.!3.-%2'.3!$&!#1&A%$!61&4!+!&'.HB+0!3%1./$%&'+)!
4&C.!%'!$*.!?'3.1)0%'2!-$&/5!)&B.1=!S*.0!+)-&!4%2*$!#1&A%$!D$*&?2*!'&$!+-!)%5.)0G!61&4!
%'/1.+-%'2!%4#)%.3!C&)+$%)%$0!7./+?-.!0&?!+1.!+!'.$!7?0.1!&6!&#$%&'-=!
S*.-.!+1.!2.'.1+))0!)&B!#1&7+7%)%$0!$1+3.-!7./+?-.!$*+$!.'3!?#!7.%'2!ugHug!7.$-!&'!$*.!
?'3.1)0%'2!3%1./$%&'=!(-!+!1.-?)$!B.!3&!'&$!$1+3.!$*.-.!$0#.-!&6!-$1+$.2%.-!&6$.'!%'!&?1!
#&1$6&)%&!7?$!B%))!&//+-%&'+))0!?-.!$*.4!6&1!1.7+)+'/%'2!#?1#&-.-!+'3!+-!*.32.-!6&1!&$*.1!
#&-%$%&'-=!
!82
Option Strategy
The Trade Setup
V?0!h!JS\!@?$T!M.))!h!"S\!@?$!+$!9&B.1!M$1%5.!@1%/.=!S*.!/&47%'+$%&'!&6!
&#$%&'-!-*&?)3!1.-?)$!%'!+!'.$!3.7%$=!
Optimal Timeline
Q'$.1%'2!$*.-.!$1+3.-!kgHrg!3+0-!?'$%)!.N#%1+$%&'!%-!#1.6.11.3=!M%'/.!&#$%&'!
#1%/%'2!%-!2.'.1+))0!7.!)&B8!0&?R))!B+'$!$&!%'/1.+-.!$*.!$1+3.!3?1+$%&'!+'3!2%C.!
0&?1-.)6!+4#).!$%4.!6&1!$*.!-$&/5!$&!4&C.!%'$&!+!#1&A%$+7).!d&'.=!
Volatility Impact
M%'/.!B.!+1.!'.$!7?0.1-!&6!&#$%&'-8!0&?!-*&?)3!7.!.'$.1%'2!$*%-!$1+3.!&')0!
B*.'!J_!K+'5!%-!7.)&B!ug=!())!.)-.!7.%'2!.U?+)8!1+%-%'2!J_!B%))!2.'.1+))0!*.)#!
$*%-!#&-%$%&'!B*%).!6+))%'2!J_!B%))!2.'.1+))0!*?1$!$*%-!#&-%$%&'=!
Time Decay
S%4.!3./+0!&1!S*.$+!B&15-!'.2+$%C.)0!+2+%'-$!?-!+-!#+1$!&6!$*%-!#&-%$%&'=!(-!
'.$!7?0.1-8!%6!$*.!-$1+$.20!%-!'&$!JS\!+$!.N#%1+$%&'!%$!.N#%1.-!B&1$*).--=!
Risk Management
"#$%4+)!#&-%$%&'!-%d%'2!6&1!&#$%&'!7?0%'2!-$1+$.2%.-!)%5.!$*%-!-*&?)3!7.!
/&'-%3.1+7)0!-4+))!+$!).--!$*+'!hp!&6!0&?1!#&1$6&)%&!.U?%$0!7+)+'/.=!
Profit Targets
Z%C.'!$*.!)&B!#1&7+7%)%$0!'+$?1.!&6!$*%-!#&-%$%&'8!.+1)%.1!#1&A%$!$+5%'2!-*&?)3!
7.!3&'.!7.$B..'!fuHugp!&6!$*.!4+N!#&$.'$%+)!2+%'=!
Break-Even Point(s)
9&'2!#?$!-$1%5.!4%'?-!'.$!3.7%$!#+%3=!
!83
Put Debit Spread Options Strategy
Put Calendar Spread
Bearish Outlook & Low Volatility…
9&'2!#?$!/+).'3+1!-#1.+3-!#1&A%$!61&4!+!-)%2*$)0!)&B.1!4&C.!3&B'!%'!$*.!?'3.1)0%'2!-$&/5!
%'!+!2%C.'!1+'2.=!:+).'3+1!-#1.+3-!)&-.!%6!$*.!?'3.1)0%'2!4&C.-!$&&!6+1!%'!.%$*.1!3%1./$%&'=!
S*.!4+N%4?4!)&--!%-!$*.!3.7%$!#+%38!?#!?'$%)!$*.!&#$%&'!0&?!-&)3!.N#%1.-=!
S*%-!$1+3.!%-!7.-$!?-.3!B*.'!%4#)%.3!C&)+$%)%$0!%-!)&B!+'3!B*.'!$*.1.!%-!%4#)%.3!C&)+$%)%$0!
n-5.Bn!7.$B..'!$*.!4&'$*-!?-.38!-#./%A%/+))0!B*.'!$*.!'.+1H4&'$*!-&)3!*+-!+!*%2*.1!
%4#)%.3!C&)+$%)%$0!$*+'!$*.!)+$.1H4&'$*!7&?2*$=!
!84
Option Strategy
The Trade Setup
M.))!h!"S\!@?$!%'!$*.!I1&'$!\&'$*T!V?0!h!"S\!@?$!%'!$*.!V+/5!\&'$*!+$!$*.!
M+4.!M$1%5.!@1%/.=!S*.!/&47%'+$%&'!&6!&#$%&'-!-*&?)3!1.-?)$!%'!+!'.$!3.7%$=!
Optimal Timeline
W&?!-*&?)3!)&&5!$&!$+12.$!$*.!61&'$!4&'$*!&#$%&'-!+$!).+-$!fgs!3+0-!&?$!$&!2%C.!
0&?1-.)6!.'&?2*!1&&4!6&1!#1.4%?4!3./+0=!('0$*%'2!-*&1$.1!$*+'!fg!3+0-!%'!
$*.!61&'$!4&'$*!&1!)&'2.1!$*+'!iu!3+0-!-*&?)3!7.!+C&%3.3=!
Volatility Impact
M%'/.!B.!+1.!'.$!7?0.1-!&6!&#$%&'-8!0&?!-*&?)3!7.!.'$.1%'2!$*%-!$1+3.!&')0!
B*.'!J_!K+'5!%-!7.)&B!ug=!())!.)-.!7.%'2!.U?+)8!1+%-%'2!J_!B%))!2.'.1+))0!*.)#!
$*%-!#&-%$%&'!B*%).!6+))%'2!J_!B%))!2.'.1+))0!*?1$!$*%-!#&-%$%&'=!
Time Decay
S%4.!3./+0!&1!S*.$+!B&15-!#&-%$%C.)0!6&1!?-!+-!#+1$!&6!$*%-!#&-%$%&'!+-!)&'2!+-!
$*.!-$&/5!1.4+%'-!1+'2.!7&?'3!B*%/*!4+N%4%d.-!$*.!4&'$*)0!/&'$1+/$!-5.B=!
Risk Management
"#$%4+)!#&-%$%&'!-%d%'2!6&1!&#$%&'!7?0%'2!-$1+$.2%.-!)%5.!$*%-!-*&?)3!7.!
/&'-%3.1+7)0!-4+))!+$!).--!$*+'!hp!&6!0&?1!#&1$6&)%&!.U?%$0!7+)+'/.=!
Profit Targets
Z%C.'!$*.!)&B!#1&7+7%)%$0!'+$?1.!&6!$*%-!#&-%$%&'8!.+1)%.1!#1&A%$!$+5%'2!-*&?)3!
7.!3&'.!7.$B..'!fuHugp!&6!$*.!4+N!#&$.'$%+)!2+%'=!
Break-Even Point(s)
_+1%.-!3.#.'3%'2!&'!-$1%5.!#1%/.-!+'3!C&)+$%)%$0=!
!85
Put Calendar Spread Options Strategy
Put (Ratio) Backspread
Bearish Outlook & Low Volatility…
(!V.+1!@?$!V+/5-#1.+3!%-!-%4%)+1!$&!+!)&'2!#?$!&#$%&'!+-!6+1!+-!0&?1!&?$)&&5!&'!$*.!
?'3.1)0%'2!-$&/5!7?$!0&?!?-.!$*.!-+).!+'3!#?1/*+-.!&6!3%66.1.'$!1+$%&-!&6!&#$%&'-!$&!#1&$./$!
+2+%'-$!+!#&--%7).!4&C.!*%2*.1!%'!$*.!-$&/5!+2+%'-$!0&?=!
S*.-.!+1.!&6$.'!1.6.11.3!$&!+-!E1+$%&!-#1.+3-F!7./+?-.!0&?!+1.!7?0%'2!+'3!-.))%'2!&#$%&'-!+$!
%'$.1C+)-!&6!h`f!&1!f`l!.$/=!^%$*!$*%-!#+1$%/?)+1!-$1+$.20!0&?!B&?)3!-.))!+!#?$!&#$%&'!+'3!
$*.'!7?0!f!)&B.1!-$1%5.!#?$-!4+5%'2!0&?!-$%))!+!'.$!7?0.1!&6!&#$%&'-!+$!+!1+$%&!&6!h`f=!
!86
Option Strategy
The Trade Setup
M.))!h!(S\!@?$T!V?0!f!"S\!@?$-!+$!9&B.1!M$1%5.!@1%/.=!S*.!/&47%'+$%&'!&6!
&#$%&'-!-*&?)3!1.-?)$!%'!+!'.$!3.7%$=!
Optimal Timeline
Q'$.1%'2!$*.-.!$1+3.-!kgHrg!3+0-!?'$%)!.N#%1+$%&'!%-!#1.6.11.3=!M%'/.!&#$%&'!
#1%/%'2!%-!2.'.1+))0!7.!)&B8!0&?R))!B+'$!$&!%'/1.+-.!$*.!$1+3.!3?1+$%&'!+'3!2%C.!
0&?1-.)6!+4#).!$%4.!6&1!$*.!-$&/5!$&!4&C.!%'$&!+!#1&A%$+7).!d&'.=!
Volatility Impact
M%'/.!B.!+1.!'.$!7?0.1-!&6!&#$%&'-8!0&?!-*&?)3!7.!.'$.1%'2!$*%-!$1+3.!&')0!
B*.'!J_!K+'5!%-!7.)&B!ug=!())!.)-.!7.%'2!.U?+)8!1+%-%'2!J_!B%))!2.'.1+))0!*.)#!
$*%-!#&-%$%&'!B*%).!6+))%'2!J_!B%))!2.'.1+))0!*?1$!$*%-!#&-%$%&'=!
Time Decay
S%4.!3./+0!&1!S*.$+!B&15-!'.2+$%C.)0!+2+%'-$!?-!+-!#+1$!&6!$*%-!#&-%$%&'=!(-!
'.$!7?0.1-8!%6!$*.!-$1+$.20!%-!'&$!JS\!+$!.N#%1+$%&'!%$!.N#%1.-!B&1$*).--=!
Risk Management
"#$%4+)!#&-%$%&'!-%d%'2!6&1!&#$%&'!7?0%'2!-$1+$.2%.-!)%5.!$*%-!-*&?)3!7.!
/&'-%3.1+7)0!-4+))!+$!).--!$*+'!hp!&6!0&?1!#&1$6&)%&!.U?%$0!7+)+'/.=!
Profit Targets
Z%C.'!$*.!)&B!#1&7+7%)%$0!'+$?1.!&6!$*%-!#&-%$%&'8!.+1)%.1!#1&A%$!$+5%'2!-*&?)3!
7.!3&'.!7.$B..'!fup!&6!$*.!4+N!#&$.'$%+)!2+%'=!
Break-Even Point(s)
SB&!VQ@-=!hG!M*&1$!#?$!-$1%5.!4%'?-!'.$!3.7%$!#+%3!fG!9&'2!#?$!-$1%5.!4%'?-!
$*.!3%66.1.'/.!7.$B..'!$*.!)&'2!/+))!-$1%5.!+'3!-*&1$!/+))!-$1%5.!).--!'.$!3.7%$=!
!87
Put (Ratio) Backspread Options Strategy
Call Diagonal Spread
Bearish Outlook & Low Volatility…
9&'2!/+))!3%+2&'+)!-#1.+3-!#1&A%$!61&4!+!)&B.1!4&C.!?#!%'!$*.!?'3.1)0%'2!-$&/5!%'!+!2%C.'!
1+'2.=!>%+2&'+)!-#1.+3-!/&47%'.!$*.!3%1./$%&'+)!'+$?1.!&6!/+))!/1.3%$!-#1.+3!B%$*!$*.!
C&)+$%)%$0!%4#+/$!&6!+!/+).'3+1!-#1.+3=!J6!.-$+7)%-*.3!6&1!+!'.$!3.7%$8!1%-5!%-!)%4%$.3!$&!$*.!
3%66.1.'/.!7.$B..'!$*.!-$1%5.!#1%/.-8!#)?-!$*.!'.$!3.7%$!#+%3=!
S*%-!$1+3.!%-!7.-$!?-.3!B*.'!%4#)%.3!C&)+$%)%$0!%-!)&B!+'3!B*.'!$*.1.!%-!%4#)%.3!C&)+$%)%$0!
n-5.Bn!7.$B..'!$*.!4&'$*-!?-.38!-#./%A%/+))0!B*.'!$*.!'.+1H4&'$*!-&)3!*+-!+!*%2*.1!
%4#)%.3!C&)+$%)%$0!$*+'!$*.!)+$.1H4&'$*!7&?2*$=!
!88
Option Strategy
The Trade Setup
M.))!h!"S\!:+))!%'!$*.!I1&'$!\&'$*T!V?0!h!"S\!:+))!%'!$*.!V+/5!\&'$*!+$!+!
[%2*.1!M$1%5.!@1%/.=!S*.!/&47%'+$%&'!&6!&#$%&'-!-*&?)3!1.-?)$!%'!+!'.$!3.7%$=!
Optimal Timeline
W&?!-*&?)3!)&&5!$&!$+12.$!$*.!61&'$!4&'$*!&#$%&'-!+$!).+-$!fgs!3+0-!&?$!$&!2%C.!
0&?1-.)6!.'&?2*!1&&4!6&1!#1.4%?4!3./+0=!('0$*%'2!-*&1$.1!$*+'!fg!3+0-!%'!
$*.!61&'$!4&'$*!&1!)&'2.1!$*+'!iu!3+0-!-*&?)3!7.!+C&%3.3=!
Volatility Impact
M%'/.!B.!+1.!'.$!7?0.1-!&6!&#$%&'-8!0&?!-*&?)3!7.!.'$.1%'2!$*%-!$1+3.!&')0!
B*.'!J_!K+'5!%-!7.)&B!ug=!())!.)-.!7.%'2!.U?+)8!1+%-%'2!J_!B%))!2.'.1+))0!*.)#!
$*%-!#&-%$%&'!B*%).!6+))%'2!J_!B%))!2.'.1+))0!*?1$!$*%-!#&-%$%&'=!
Time Decay
S%4.!3./+0!&1!S*.$+!B&15-!#&-%$%C.)0!6&1!?-!+-!#+1$!&6!$*%-!#&-%$%&'!+-!)&'2!+-!
$*.!-$&/5!1.4+%'-!1+'2.!7&?'3!B*%/*!4+N%4%d.-!$*.!4&'$*)0!/&'$1+/$!-5.B=!
Risk Management
"#$%4+)!#&-%$%&'!-%d%'2!6&1!&#$%&'!7?0%'2!-$1+$.2%.-!)%5.!$*%-!-*&?)3!7.!
/&'-%3.1+7)0!-4+))!+$!).--!$*+'!hp!&6!0&?1!#&1$6&)%&!.U?%$0!7+)+'/.=!
Profit Targets
Z%C.'!$*.!)&B!#1&7+7%)%$0!'+$?1.!&6!$*%-!#&-%$%&'8!.+1)%.1!#1&A%$!$+5%'2!-*&?)3!
7.!3&'.!7.$B..'!fuHugp!&6!$*.!4+N!#&$.'$%+)!2+%'=!
Break-Even Point(s)
_+1%.-!3.#.'3%'2!&'!-$1%5.!#1%/.-!+'3!C&)+$%)%$0=!
!89
Call Diagonal Spread Options Strategy
About the Author
Kirk N. Du Plessis
;%15!%-!+!6?))H$%4.!&#$%&'-!$1+3.18!1.+)!.-$+$.!%'C.-$&18!+'3!-$+0H+$H*&4.!>+3=!(!6&14.1!\.12.1-!
+'3!(/U?%-%$%&'-!J'C.-$4.'$!V+'5.1!6&1!>.?$-/*.!V+'5!%'!<.B!W&15!+'3!KQJS!('+)0-$!6&1!VVqS!
:+#%$+)!\+15.$-!%'!^+-*%'2$&'!>=:=8!*.!6&?'3.3!"#$%&'!()#*+!%'!fggj=!;%15c-!7..'!%'$.1C%.B.3!
&'!3&d.'-!&6!%'C.-$%'2!B.7-%$.-O#&3/+-$-O-*&B-!+'3!B+-!1./.'$)0!6.+$?1.3!%'!V+11&'R-!
\+2+d%'.!+-!+!/&'$1%7?$&1!$&!$*.%1!(''?+)!V1&5.1R-!
K.C%.B!+4&'2!&$*.1!A%'+'/%+)!#?7)%/+$%&'-=!
^*+$!-$+1$.3!+-!+!-4+))!7)&2!*+-!U?%/5)0!21&B'!
%'$&!&'.!&6!$*.!%'3?-$10c-!4&-$!1.-#./$.3!
+?$*&1%$%.-!&'!&#$%&'-!$1+3%'2!B%$*!4&1.!$*+'!u=i!
4%))%&'!C%-%$&1-!.+/*!0.+1!+'3!lg8ggg!+/$%C.!
4.47.1-!1.#1.-.'$%'2!if!3%66.1.'$!/&?'$1%.-=!
Q+/*!4&'$*!"#$%&'!()#*+!/&+/*.-!$*&?-+'3-!&6!
#.&#).!61&4!+))!&C.1!$*.!B&1)3!B*&!3.-#.1+$.)0!
B+'$!$&!7.!-?//.--6?)!$1+3%'2!&#$%&'-!7?$!
+7-&)?$.)0!*+++H+$.!$*.!1?'!+1&?'3!$*.0!2.$!61&4!
&$*.1!$1+%'%'2!/&4#+'%.-=!
^.!-*&B!$*.4!*&B!$&!/&'-%-$.'$)0!4+5.!-4+1$.18!
4&1.!#1&A%$+7).!$1+3.-!B*%).!+)-&!7&&-$%'2!$*.%1!
/&'A%3.'/.!70!-*&B%'2!$*.4!;%15R-!#.1-&'+)8!1.+)H
4&'.0!$1+3.-!.+/*!+'3!.C.10!'%2*$!+6$.1!$*.!
4+15.$!/)&-.-!D2&&3!s!7+3G=!
^*.'!*.c-!'&$!*.)#%'2!$*&?-+'3-!&6!#.&#).!$?1'!
&#$%&'-!$1+3%'2!%'$&!+!#+--%&'!+'3!%'/&4.!-$1.+4!$*.0!)&C.8!0&?c))!A%'3!*%4!-#.'3%'2!$%4.!B%$*!
*%-!7.+?$%6?)!B%6.!+'3!$B&!7+70!2%1)-!&1!B&15%'2!&'!*%-!hrji!@&'$%+/!ZS"!%'!$*.%1!*&4.!-$+$.!&6!
@.''-0)C+'%+=!
J6!0&?R1.!1.+30!$&!P&%'!"#$%&'!()#*+R-!21&B%'2!/&44?'%$0!+'3!-$+1$!B&15%'2!B%$*!;%158!?#21+3.!
$&!$*.!@K"!&1!Q9JSQ!4.47.1-*%#!).C.)!*.1.!&1!-?7-/1%7.!$&!&?1!B..5)0!#&3/+-$=
About The Author
