Chapters in Derivatives & Options Flow
Chapter 4 of 5 · 6 min read
Option strategies: spreads, theta and defined risk
How combining legs caps risk, and what an options strategy lab is showing you.
A single option leg has either unlimited risk (sold) or total premium loss (bought). Combining legs shapes the payoff so max profit and max loss are known upfront.
Common structures
- Bull call / bear put spread: directional with capped cost and capped gain.
- Credit spreads: collect premium, with defined maximum loss.
- Iron condor: profit if price stays in a range.
- Straddle/strangle: bet on a large move either way.
Check margin, breakevens, probability of profit and what happens as expiry nears. Defined risk does not mean low risk.
Key takeaways
- Spreads trade away some upside for capped downside.
- Always know breakevens and max loss before entry.
- Strategy outputs are illustrations, not advice.
Put it into practice
Open the live page on Market Intelligence and see this concept on real data.
Keep learning
- Unusual options activity and how to use it · Derivatives & Options Flow
Education only, not investment advice. Updated 2026-10-09.