Most option strategies combine a contract with stock, or one contract with another, to reshape a payoff — trading away some upside for income, downside protection, or a lower cost.
The foundational four
| Strategy | Built from | Goal |
|---|---|---|
| Covered call | Own 100 shares + sell a call | Earn income; cap upside above the strike. |
| Protective put | Own 100 shares + buy a put | Insurance: floor your downside for a premium. |
| Bull call spread | Buy a call + sell a higher call | Bet on a rise at lower cost; capped gain. |
| Bear put spread | Buy a put + sell a lower put | Bet on a fall at lower cost; capped gain. |
The universal trade-off
Every one of these gives something up to get something else. A covered call earns premium but surrenders the big rally. A spread cuts your cost but caps your profit. There is no strategy that removes risk for free — only ones that move it to where you can live with it.
Example: you own a stock at $50 and sell a $55 call for $1.50. You keep the $1.50 no matter what. If the stock finishes below $55 you keep your shares and the premium; if it rockets to $60 your shares are called away at $55 — you still profit, just not the full run.
