Lesson 7: Basic Options Strategies — Amazing Simple Trades Every Beginner Should Know

Lesson 7: Basic Options Strategies — Simple Trades Every Beginner Should Know

🧠 Core Concept of Options Strategies

Now that you understand Calls and Puts, it’s time to learn how to actually use them.
This lesson covers the 4 easiest and most beginner-friendly options strategies:

  • Buying Calls
  • Buying Puts
  • Selling Covered Calls
  • Selling Cash-Secured Puts

These options strategies form the foundation for more advanced trades later.

1️⃣ Buying a Call Option

Use when you think the stock will go UP
You pay a premium for the right to buy shares at a certain price.

Example:

  • AAPL is $100
  • You buy a $105 Call, paying $2.00
  • If AAPL rises to $115 → You make ($115 − $105 − $2) × 100 = $800

Pros:

  • Low cost, high upside
  • Defined risk (you only lose the premium)

Cons:

  • Time decay eats value (Theta)
  • Needs significant move to profit

2️⃣ Buying a Put Option

Use when you think the stock will go DOWN
You pay a premium to lock in a high selling price.

Example:

  • SPY is $400
  • You buy a $390 Put for $3.00
  • If SPY drops to $370 → You make ($390 − $370 − $3) × 100 = $1,700

Pros:

  • Profit from falling prices
  • Can hedge your stock positions

Cons:

  • Premium can expire worthless if no drop
  • Theta decay and IV sensitivity

3️⃣ Selling a Covered Call

Use when you own shares and want to earn extra income
You sell a Call against shares you already hold.

Example:

  • You own 100 shares of MSFT at $300
  • You sell a $310 Call and receive $2.50 (=$250)

Outcomes:

  • If MSFT stays below $310 → You keep the shares + $250
  • If MSFT rises above $310 → You sell the shares at $310, still with a profit

Pros:

  • Generates income passively
  • Low risk if you’re holding the stock anyway

Cons:

  • You cap your upside (must sell at strike if called)
  • Must own 100 shares

4️⃣ Selling a Cash-Secured Put

Use when you want to buy a stock at a lower price
You sell a Put and set aside cash in case you’re assigned.

Example:

  • You want to buy NVDA at $600 (current price $630)
  • Sell a $600 Put, receive $7.00 (=$700)

Outcomes:

  • If NVDA stays above $600 → You keep the $700
  • If NVDA drops below $600 → You must buy 100 shares at $600, but your net price is $593

Pros:

  • Get paid to wait for a dip
  • Enter stock at a discount

Cons:

  • Must be ready to buy 100 shares
  • Still exposed if stock crashes hard

Go deeper into Managing Cash Secured Puts

🧮 Options Strategies Comparison Table

Options StrategiesMarket OutlookMax RiskMax RewardRequires Stock?
Buy CallBullishPremium PaidUnlimited❌
Buy PutBearishPremium PaidStrike − Premium❌
Sell Covered CallNeutral/BullishLosing upsidePremium + Stock Gain✅
Sell Cash-Secured PutBullish/NeutralBuy Stock at StrikePremium Earned💵 (cash only)

✅ Option Strategies Quick Quiz

  1. Which strategy pays you while you wait to buy stock?
  2. What’s the max risk when buying a call?
  3. What do you need to sell a covered call?

🧠 Answers

  1. Selling a cash-secured put
  2. The premium paid
  3. You must own 100 shares of the stock

Check out how we apply these various options strategies in our Stock Options Analysis & Trading Strategies!

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