Intermediate · 9 min read

Core strategies: spreads, straddles, strangles, condors

How common multi-leg structures are built, what they risk and what they earn.

Combining options lets you shape risk and reward. These are the structures you can load from the Builder's ready-made menu. Each example is a description of how the structure behaves, not a suggestion to trade it.

Vertical spreads

Buy one option and sell another of the same type and expiry at a different strike. A bull call spread (buy lower-strike call, sell higher-strike call) has limited profit and limited loss and gains when the underlying rises. A bear put spread is the mirror image. A credit spread (for example selling a put and buying a lower put) receives premium and has limited risk equal to the width of the strikes minus the credit.

Straddle and strangle

A long straddle buys a call and a put at the same strike and gains from a large move either way; it loses if the market stays still. A short straddle is the reverse: it earns if the market stays near the strike but has very large risk if it moves a lot. A strangle uses different strikes (call above, put below), so it is cheaper (long) or has a wider profit zone (short).

Iron condor and iron butterfly

An iron condor is a short strangle with a long call and long put further out as protection. It earns a limited credit if the market stays inside a range, and its loss is capped: (width of the wing − credit received). An iron butterfly is the same idea with short options at the same strike, giving a higher credit but a narrower profit zone.

Ratio spreads

Selling more options than you buy (for example buy 1, sell 2) can reduce cost, but the extra short option carries open-ended risk beyond the short strike.

Caution. 'Defined-risk' does not mean 'low-risk'. A condor's maximum loss can be several times its maximum profit. Always check the max loss number in the Builder before placing a paper order.