Spreads & Multi-leg Strategies
One option is a blunt tool. Combining two or more (called 'legs') is like mixing ingredients in a recipe — you can build a position that costs less, caps your risk, or profits only if the market stays in a range. This lesson shows the most common recipes and when to cook each one.
Single options are blunt. Combining legs lets you sculpt risk precisely — cap your loss, reduce cost, target a range, or trade volatility itself. This is where options become a craft.
Vertical spreads — define your risk
Buy one option and sell another of the same type at a different strike. A bull call spread (buy lower call, sell higher call) cuts your cost and caps both profit and loss. You give up unlimited upside in exchange for a cheaper, defined-risk position. Verticals are the workhorse of directional options trading.
Straddles & strangles — trade movement
A long straddle (buy ATM call + put) profits from a big move in either direction — ideal before an expected event, deadly if the market stays quiet. A short straddle/strangle does the opposite: it profits from stillness and high IV, with the unlimited-risk warning attached.
Iron condor — the income structure
Sell an OTM call spread and an OTM put spread simultaneously. You collect premium and profit if the underlying stays in a band, with both sides defined-risk. The iron condor is the canonical range-bound income trade — and a superb teaching tool because its payoff is a clean plateau with capped wings.
Why net Greeks matter
A multi-leg position’s behaviour is the sum of its legs’ Greeks. An iron condor is delta-neutral (no strong directional bias), long theta (collects decay), and short vega (hurt by rising IV). Reading the net Greeks tells you what you are really exposed to — far more than the payoff diagram alone.