Series 7 Options Strategies Cheat Sheet

🧾 Series 7 Options Strategies Cheat Sheet
📘 Quick Reference for Common Options Strategies on the Series 7 Exam

The Series 7 exam includes several types of options strategies that candidates must understand. These strategies range from basic to more complex, and they each have different risk/reward profiles. Here’s a cheat sheet summarizing the most commonly tested options strategies for the Series 7 exam.

🎯 1. Basic Options Terminology

• Call Option: Gives the buyer the right (but not the obligation) to buy an underlying asset at a specified price (strike price) within a certain period.
• Put Option: Gives the buyer the right (but not the obligation) to sell an underlying asset at a specified price (strike price) within a certain period.

Buyer of a Call:

• Profit: If the underlying asset price rises above the strike price, the buyer profits.
• Loss: The loss is limited to the premium paid for the call option.

Buyer of a Put:

• Profit: If the underlying asset price falls below the strike price, the buyer profits.
• Loss: The loss is limited to the premium paid for the put option.

Seller of a Call:

• Profit: Limited to the premium received for selling the call.
• Loss: Potentially unlimited if the underlying asset price rises significantly above the strike price.

Seller of a Put:

• Profit: Limited to the premium received for selling the put.
• Loss: The loss is significant if the underlying asset price falls substantially below the strike price.

🎯 2. Bullish Strategies

Long Call

• Objective: Profit from a price increase in the underlying asset.
• Risk: The loss is limited to the premium paid for the call.
• Reward: Unlimited potential gain as the price of the underlying asset rises.

Bull Call Spread

• Objective: Profit from a moderate increase in the underlying asset’s price.
• How It Works: Buy a call at a lower strike price and sell a call at a higher strike price with the same expiration date.
• Risk: Limited to the net premium paid (the difference between the premium paid for the long call and the premium received for the short call).
• Reward: Limited to the difference between the strike prices minus the premium paid.

Long Stock

• Objective: Profit from an increase in stock price.
• Risk: Unlimited, as the price of the stock can theoretically rise indefinitely.
• Reward: Unlimited gain potential if the stock price increases.

🎯 3. Bearish Strategies

Long Put

• Objective: Profit from a decrease in the underlying asset’s price.
• Risk: Limited to the premium paid for the put.
• Reward: Significant gain potential as the asset price falls.

Bear Put Spread

• Objective: Profit from a moderate decline in the price of the underlying asset.
• How It Works: Buy a put at a higher strike price and sell a put at a lower strike price with the same expiration date.
• Risk: Limited to the net premium paid for the spread.
• Reward: Limited to the difference between the strike prices minus the net premium paid.

Short Stock

• Objective: Profit from a decline in stock price.
• Risk: Unlimited, as the stock price could rise indefinitely.
• Reward: Limited to the amount the stock falls, with maximum profit being the price of the stock at the time of sale minus zero.

🎯 4. Neutral Strategies

Iron Condor

• Objective: Profit from low volatility in the underlying asset’s price.
• How It Works: A combination of a bull put spread and a bear call spread:
  • Sell a put at a lower strike price.
  • Buy a put at an even lower strike price.
  • Sell a call at a higher strike price.
  • Buy a call at an even higher strike price.
• Risk: Limited to the difference between the strike prices minus the net premium received.
• Reward: Limited to the net premium received.

Straddle

• Objective: Profit from a significant price movement in either direction.
• How It Works: Buy a call and a put with the same strike price and expiration date.
• Risk: The risk is limited to the total premium paid for both the call and put.
• Reward: Unlimited profit potential if the price moves significantly in either direction.

Strangle

• Objective: Profit from a significant price movement in either direction, but at a lower cost than a straddle.
• How It Works: Buy a call and a put with different strike prices (the call has a higher strike than the put) but the same expiration date.
• Risk: The risk is limited to the total premium paid for both the call and put.
• Reward: Unlimited profit potential if the price moves significantly in either direction.

🎯 5. Volatility Strategies

Long Straddle (Volatility Play)

• Objective: Profit from large price movements regardless of direction (typically used in volatile markets).
• How It Works: Buy a call and a put with the same strike price and expiration date.
• Risk: The loss is limited to the total premium paid for the call and put.
• Reward: Unlimited potential for large movements in either direction.

Short Straddle (Volatility Play)

• Objective: Profit from low volatility, where the underlying asset price does not move significantly.
• How It Works: Sell a call and a put with the same strike price and expiration date.
• Risk: The risk is unlimited if the underlying asset price moves significantly in either direction.
• Reward: The reward is limited to the total premium received for selling the call and put.

🚀 Conclusion: Mastering the Key Options Strategies

This cheat sheet provides a quick reference for the most commonly tested options strategies on the Series 7 exam. By understanding the risk/reward profiles, the mechanics of each strategy, and when to use them, you’ll be better prepared for the exam.

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