Chapter 06 · Section 6.1

Terminology of Trading Strategies

The most common trading strategies are simply combinations of the basic option positions (short call, long call, short put, long put). Several long or short positions can be combined to form one single position. As will be discussed in the rest of chapter six, these option positions are used by investors to get the most out of the market considering their risk tolerance and market outlook.

The important basic combinations include spreads, straddles and strangles. Terms such as: bullish, bearish, vertical, diagonal, horizontal, etc. are used to further describe these strategies. The objective of this topic is to strengthen your comprehension of these terms before looking at the actual strategies in greater detail.