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Options Trading Strategies

Overview
Options Trading
Options Trading Strategies

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Overview

The Option Summary Report supports standard option trading strategies.

Non-standard option strategies are not supported and may produce unexpected results.
All pairings displayed are based on prior day holdings.
Always check your positions before making trades.
The content in the Type, Theme, and Debit/Credit columns in the table below contain likely characteristics for each strategy. This information is not an indication of performance and should not be used solely as the criteria for placing your trades.
The security examples used are for illustrative purposes of the various trading scenarios and should not be construed as a recommendation to buy or sell the securities listed.

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Options Trading

You must meet the following requirements to trade options at Fidelity:

A brokerage account.
An Option Agreement on file with the appropriate option level for the trade you want to place.
A Margin Agreement on file (depending on the type of trade).

Note
To trade on margin, you must have a Margin Agreement on file with Fidelity. If you do not have a Margin Agreement, you must use cash.
Sufficient buying power in your account to cover the margin requirement for the trade.
Appropriate entitlements.

Option Levels

Level 1: Covered call writing of equity options.
Level 2: Level 1, plus purchases of calls and puts (equity, index, currency and interest rate index), writing of cash covered puts, and purchases of straddles or combinations (equity, index, currency and interest rate index). Note that individuals approved to trade option spreads in retirement accounts are considered approved for Level 2. Retirement accounts can be approved to trade spreads. A new option application and a Spreads Agreement must be submitted at the same time and approved prior to placing any spread transaction.
Level 3: Levels 1 and 2, plus equity spreads and covered put writing.
Level 4: Levels 1, 2, and 3, plus uncovered (naked) writing of equity options and uncovered writing of straddles or combinations on equities.
Level 5: Levels 1, 2, 3, and 4, plus uncovered writing of index options, uncovered writing of straddles or combinations on indexes, and index spreads.

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Options Trading Strategies

The following table contains information on the options trading strategies supported by Fidelity.

Strategy	Minimum Approval Level	Type	Theme	Debit/Credit	Description	Example
Cash Covered Put	Level 2	Neutral	Income	Net Credit	An options strategy that allows a customer with Level 2 option approval - purchase of calls and puts (equity and index), and purchases of straddles and combinations (equity and index) to sell (write) a put option on a underlying security not owned by the customer. This capability essentially provides Level 4 option approval (uncovered writing). Cash requirement for the trade: Number of Contracts * Strike Price * 100	A customer wants to execute a cash covered put for 2 contracts of $37.00 put options trading at $0.21. The cash requirement for the trade is: 2 * 37.00 * 100 = $7400
Convertible Hedge	n/a	n/a	n/a	n/a	This strategy involves being long (buying) a convertible bond and shorting the common stock. *Note* This is not an options strategy, but one that goes long a convertible bond and short the underlying security.	Buy $1000 face value of a convertible bond. Determine the conversion ratio. Short the underlying security using the amount equal to the conversion ratio.
Covered Put	Level 3	Bearish	Income	Net Credit	An options strategy where you write a put option, and simultaneously hold a short position in the underlying security.	Best Buy [BBY] trading at $29.25 Short 1000 BBY at $29.25 Sell 10 April $29 BBY Put at $0.70 (or $0.70 100 10 = $700)
Credit Spread	Level 3	Neutral	Income	Net Credit	An options strategy that buys and sells options on the same underlying where the credit from the sale is greater than the cost of the purchase. The result is a credit at the time of entry. The maximum profit achieved is the credit received. Requirements: Same class (all puts or all calls) Same expiration date Same underlying security	Best Buy [BBY] trading at $29.25 Sell 1 April $30.00 BBY Call at $0.45 or $45.00 Buy 1 April $35.00 BBY Call at $0.05 or $5.00 Net Credit: $40.00
Debit Spread	Level 3	Calls: Bullish Puts: Bearish	n/a	Net Debit	An options strategy that buys and sells options on the same underlying where the debit from the purchase is greater than the sale (credit) at the time of entry. Profit is obtained when the value of the purchased options increase to cover at least the debit. Requirements: Same class (all puts or all calls) Same expiration date Same underlying security	Best Buy [BBY] trading at $29.25 Buy 1 April $30.00 Call at $0.45 or $45.00 Sell 1 April $35.00 Call at $0.05 or $5.00 Net Debit: $40.00
Hedge Call	Level 1	Hedge	Short Stock	Net Debit	An options strategy where one leg is a short position in a stock and the second leg is a call that hedges against a loss in the event the underlying price rises.	Saks Fifth Avenue [SKS] trading at $11.10 Short Stock: Sell 1000 shares SKS at $11.10 Long Call Option: Buy 10 April $12 SKS Call at $0.20
Hedge Put	Level 1	Hedge	Long Stock	Net Debit	An options strategy where one leg is a long position in a stock and the second leg is a put that hedges against a loss in the event the underlying price declines.	Dryships [DRYS] trading at $5.00 Long Stock: Buy 1000 DRYS at $5.00 Long Put Option: Buy 10 April $5 DRYS Put at $0.88
Long Box Spread	Level 3	Spread	Lock In Small Profit	Net Debit	An options strategy that is comprised of two vertical spreads (the purchase of one option and the sale of another, where both options are of the same type, underlying, expiration and different exercise prices). A bull call spread and a short bear spread are purchased together to take advantage of under priced contracts. Requirements: Strike prices of the long call and short put must be equal. Strike prices of the short call and the long put must be equal. Strike price of the long call and the short put must be less than the strike price of the short call and long put.	Williams Sonoma [WSM] trading at $39.50 Calls & Puts for 4 Leg Strategy: Buy 1 April $37 WSM Call Sell 1 April $40 WSM Call Buy 1 April $40 WSM Put Sell 1 April $37 WSM Put
Long Butterfly Spread	Level 3	Spread	Neutral	Net Debit	An options strategy consisting of four options contracts at three strike prices for the same class (call or put). One bought in the money (Buy 1 call/put) Two sold out of the money (Sell 1 calls/puts) One bought out of the money (Buy 1 call/put). Maximum profit is achieved when the underlying price does not change or changes very little. The trade is referred to as long because it requires a capital outlay. Requirements: Ratio is always 1:2:1. Same class (all puts or all calls) Strike prices are equidistant for each leg. Same expiration date Same underlying security	Tiffany [TIF] trading at $59.60 Buy 1 April $55 TIF Sell 2 April $60 TIF Buy 1 April $65 TIF
Long Calendar Butterfly Spread	Level 3	Spread	Lock In Small Profit	Net Debit	An options strategy comprised of entering a long calendar spread (buying a longer term at the money option and selling a shorter term at the money option) and a butterfly spread.	Home Depot [HD] trading at $37.58 Buy 1 May $37 HD Sell 2 April $38 HD Buy 1 April $39 HD
Long Calendar Condor Spread	n/a	n/a	Lock In Small Profit	n/a	An options strategy comprised of entering a long calendar spread (buying a longer term at the money option and selling a shorter term at the money option) and two long butterfly spreads.	General Electric [GE] trading at $20.00 Buy 1 May $20 GE Sell 1 April $21 GE Sell 1 April $22 GE Buy 1 April $23 GE
Long Call	Level 2	Bullish	Expecting Underlying Security to Rise in Value	Net Debit	An options strategy where you purchase a call option.	Buy 1 April $240 Netflix [NFLX] Call
Long Condor Spread	Level 3	n/a	Lock In Small Profit	n/a	An options strategy comprised of entering a buy then two sales followed by one buy. A long condor must be a debit; conversely, a short condor must be a credit spread. Requirements: Same class (all puts or all calls) Same expiration date Incrementing equidistant strike prices	Cephalon [CEPH] trading at $75.60 Buy 1 April $70 CEPH Sell 1 April $75 CEPH Sell 1 April $80 CEPH Buy 1 April $85 CEPH
Long Put	Level 2	Bearish	Expecting Underlying Security to Decrease in Value	Net Debit	An options strategy where you purchase a put.	Buy 1 April $270 Autozone [AZO] Put
Naked Call	Level 4	Neutral	Collect Premium	Net Credit	An options strategy where you sell (write) calls on an underlying you do not own.	Sell 1 April $590 Google [GOOG] Call
Naked Put	Level 4	Neutral	Collect Premium	Net Credit	An options strategy where you sell (write) puts on an underlying you do not own.	Sell 1 April $38.00 Verizon [VZ] Put
Protective Put	Level 2	Bullish With Reservations	Insurance Policy	Net Debit	An options strategy where you protect your unrealized gain by purchasing put options. The options give you the right to sell the equity at the strike price, which limits the loss from a decline in share prices.	Pier 1 Imports [PIR] trading at $10.00 Long Stock: Buy 1000 PIR at $0.35 = $350.00 Stock now trades at $10.00 giving you a $9.65 per share unrealized gain. Protective Put: Buy 10 April $8.00 PIR Put for .$0.05 * 100 * 10 = $50.00
Reverse Conversion	Level 4	Bearish	n/a	n/a	An options strategy where you short (sells short) an underlying and simultaneously sell at the money put(s) and buys at the money call(s) with the same expiration date.	Nordstrom [JWN] trading at $44.75 Sell Short 500 Shares JWN at Market Sell 5 April $44 JWN Put Buy 5 April $44 JWN Call
Short Box Spread	Level 3	Neutral	Lock In Small Profit	Net Credit	An options strategy where you sell two spreads together, a bull call spread and a short bear spread, so you can take advantage of overpriced contracts.	Apple [AAPL] trading at $348.25 Buy 10 April $345 AAPL Call Sell 10 April $340 AAPL Call Buy 10 April $340 AAPL Put Sell 10 April $345 AAPL Put
Short Butterfly Spread	Level 3	Neutral	Lock In Small Profit	Net Credit	An options strategy consisting of four options contracts at three strike prices for the same class (call or put). Sell 1 call/put Buy 2 calls/puts Sell 1 call/put. The trade is referred to as short because it does not require a capital outlay. Requirements: Ratio is always 1:2:1. Same class (all puts or all calls) Strike prices are equidistant for each leg. Same expiration date Same underlying security	Dryships [DRYS] trading at $4.60 Sell 1 April $4 DRYS Buy 2 April $4.50 DRYS Sell 1 April $5 DRYS
Short Calendar Iron Butterfly Spread	Level 3	Neutral	Lock In Small Profit	Net Credit	An options strategy consisting of a long calendar spread, a long butterfly spread, and a short box spread. *Note* Middle leg strikes must match; only 1 leg longer than the rest.	Altria [ALTR] trading at $42.50 Buy 4 April $48 ALTR Call at $0.14 Sell 4 April $43 ALTR Call at $1.65 Sell 4 April $43 ALTR Put at $0.75 Buy 4 Sept $38 ALTR Put at $1.95
Short Calendar Iron Condor Spread	Level 3	Neutral	Lock In Small Profit	Net Credit	An options strategy consisting of a long calendar spread, two long butterfly spreads, and a short box spread. *Note* Middle leg strikes must be > 0; only 1 leg longer than the rest.	McDonalds [MCD] trading at $75.90 Buy 1 JUNE $80 MCD Call Sell 1 APRIL $75 MCD Call Sell 1 APRIL $72.50 MCD Put Buy 1 APRIL $70.00 MCD Put
Short Iron Butterfly Spread	Level 3	Neutral	Lock In Small Profit	Net Debit	An options strategy where you: Sell 1 out of the money put Buy 1 at the money put Buy 1 at the money call Sell 1 out of the money call The trade results in a net debit which is the maximum loss possible. This occurs if the underlying price is unchanged at expiration. The strategy is most profitable if the underlying price changes significantly, past either the highest or lowest strike price agreed to.	Intel [INTC] trading at $19.80 Sell 1 April $17 INTC Put Buy 1 April $20 INTC Put Buy 1 April $20 INTC Call Sell 1 April $21 INTC Call
Short Iron Condor Spread	Level 3	Neutral	Lock In Small Profit	Net Credit	An options strategy where you buy option contracts inner strikes using out of the money call options. Then, you also sell options contracts for the outer strikes. Buy 1 out of the money put Sell 1 out of the money put (lower strike) Buy 1 out of the money call Sell 1 out of the money call (higher strike) You are speculating the stock will either rise or fall dramatically in the near future.	Monsanto [MON] trading at $67.75 Buy 1 April $65.00 MON Put at $0.03 Sell 1 April $67.50 MON Put at $0.41 Sell 1 April $70.00 MON Call at $0.07 Buy 1 April $72.50 MON Call at $0.01
Short vs. Box	n/a	n/a	n/a	n/a	You expect the stock price to remain unchanged and use the proceeds from the short to invest in another security that will generate more yield than the underlying. *Note* This is not an options strategy; it is an equity strategy where the customer is both long and short the same position.	Walmart [WMT] trading at $55.00 Long Stock: 1000 WMT at $10.00 Short Stock: 1000 WMT at Market or $55.00
Strangle	Level 2	Neutral	Volatility	Net Debit	A multi-leg options trading strategy involving a long call and a long put, or a short call and a short put, where both options have the same expiration date, but different strike prices. You anticipate a significant move either up or down with a possible increase in volatility. *Note* Strangle trades display in the options pairing report as Straddles.	Sprint Nextel [S] trading at $4.75 Buy May $4.50 Put at $0.17 Buy May $5.00 Call at $0.21
Straddle	Level 2	Neutral	Volatility	Net Debit	An options strategy where you simultaneously purchase a call and put option on the same underlying security with the same expiration and the same strike prices. You are looking for a big move up or down in the underlying based on info that will affect the company directly (e.g. earnings, same store sales, etc.).	Lowe's [LOW] trading at $24.95 Buy 1 June $25 LOW Call Buy 1 June $25 LOW Put
Collar	Level 2	Neutral	n/a	n/a	An options strategy where you own the underlying stock then sell calls and buy puts (protective) on the underlying security.	AIG [AIG] trading at $50 Buy 100 AIG at Market or $50 Sell 1 $60 AIG Call Buy 1 $45 AIG Put
Buy Write	Level 1	Neutral	Reduce Share Cost of Equity Position	Net Credit	An options strategy where you simultaneously buy stock and write options on the same underlying security.	Glu Mobile [GLUU] trading at $3.33 Buy 500 GLUU at Market or $3.33 Sell 5 July $5.00 GLUU Call

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