6 Option Trading Strategies | Ranked from Profitability and Risk

When it comes to options strategies, there are many different ways to make money. Some methods are more profitable than others, but they also come with a higher risk. This blog post will rank six option trading strategies from most profitable to least while also discussing the associated level of fixed risk. We will also provide you with tips on using each method for maximum success!

6 Option Trading Strategies | Ranked from Profitability and Risk
6 Option Trading Strategies | Ranked from Profitability and Risk

Ranking Option Trading Strategies

Option trading strategies can be a great way to make money, but only if you know what you're doing. After many years of trial and error, we have slowly tested some of the most popular strategies to determine which one is best. These strategies will be ranked according to possible rewards, with ten being the highest and possible safety with ten being the highest.

#6 Option Trading Strategies Short Iron Condor

Reward Ranking: 4

Safety Rating: 3

Overall Rating: 7

The Iron Condor is an option trading strategy that can be used when you are expecting low volatility in the market. It involves selling an out-of-the-money put and call option while also buying an out-of-the-money put and call. This will create both a call and put credit spread.

The idea behind this strategy is that you will profit as long as the underlying stock security remains between the strike prices of the options strategy that you have sold for the call options and put. While this strategy can be profitable, it has downside risks. If there is a significant move in either direction, your losses could be significant.

Passive Income Opportunity

Credit spreads will be discussed later in this blog but this option selling strategy allows traders to take advantage of option decay. Option decay can allow a retail investor to yield passive income if the price moves (or doesn't) in a certain way.

Risk to Reward Chart

The risk and reward can be seen visually in the example below. The short strike prices for a call and put define the max profit zones. As long as the stock stays within these prices the trader will receive the total credit from the short iron condor. If the price of the stock moves too much at the time of expiration this is when the trader can experience a max loss past the break-even points. The calculations for all these prices are below:

  • *LP = LONG PUT

iron condor

Double Risk Similar Reward

The short iron condor will allow the trader to collect double the premium of a single side credit spread. This doubled premium is created because a short iron condor is made up of a call and put credit spread. When the trader adds these two credit spreads together the credit possibly received doubles.

The beautiful part of this strategy is that the risk of the trade stays the same. The iron condor can only experience max loss if the trade runs largely in one direction, which means both credit spreads can never experience max loss at the same time.

Tough to Achieve Max Profit

One of the major downsides to the short iron condor is the struggle to achieve max profit. The goal of this strategy is for the stock to sit within a tight range. Unfortunately, the market is mostly directional and very hard to pin. A large direction just leads to a max loss in one credit spread of the iron condor making this strategy almost impossible to consistently trade.

With that being said, there are moments the market is sideways and where this strategy will excel. The trader just has to be extremely good at recognizing these moments.

The higher level of possible reward compared to risk makes this strategy attractive to option sellers. Despite this fact, we actually prefer to use credit spreads instead of iron condors because of reasons we will discuss next.

#5 Option Trading Strategies: Credit Spreads

Reward Ranking: 3

Safety Rating: 4

Overall Rating: 7

A credit spread is an option trading strategy that involves selling one option and buying another option with less value. As a result, the option trading strategies you sell will have a lower strike price than the option you buy for call options and a higher strike price for puts. This can be seen in the example below for the Call Credit Spread profit and loss graph.

This strategy is used when you expect the underlying stock security to trade lower than the short strike price for a call credit spread. In the example below, as it looks like the stock price of the underlying stock is lower than the breakeven strike price, the trader will not lose money.

Suppose the stock price falls beneath the same strike price; that is where the trader will slowly see their profit increase until the max is hit. Your goal is to profit by collecting the total premium paid from the option.

call credit spread

3 Direction Win from Stock Price

Unlike the iron condor, the credit spread can allow the trader to profit in 3 scenarios fully. In the chart below, let's say the trader placed a put credit spread when the stock falls inside the yellow area. The short strike price was lower inside the grey area box. The distance between the stock price and the short strike price means the trader can still profit if the stock goes against them.

The actual scenarios that lead to profit are below:

  • if the stock drops but stays above $32.50, the credit spread will achieve make profit
  • if the stock trade sideways, the credit spread will achieve make profit
  • if the stock runs, the credit spread will achieve make profit

3 Direction Win from Stock Price

The market can be tough to predict, but having the stock move in every direction and profit makes the credit spread our favorite of short option strategies.

#4 Option Trading Strategies: Short Term Options Trading

Reward Ranking: 8

Safety Rating: 1

Overall Rating: 9

Short-term options trading strategies offer a great risk-to-reward scenario specifically for traders. This opportunity can only be utilized by traders who can manage to trade options throughout the day or week, sell for a possible loss while staying unemotional, and allow them to run to their intended profit target.

Short Term Options Strategy

The market is constantly moving large percentages every single day. Nailing the move with a short-term option on any stock for 10-30 minutes gives traders an opportunity daily and weekly. The math of short-term options is broken down below. These possible returns allow the trader to see large returns in a short period of time. This can give traders peace of mind holding large cash positions every night.

  • 1% could be an average return for just stock
  • 2% could be an average return for an option on the stock with one year till the expiration date
  • 6% could be an average return for an option on the stock with six months till the expiration date
  • 30% could be an average return for an option on the stock with one month till expiration
  • 60% could be an average return for an option on the stock with one month till expiration
  • 120% could be an average return for a vote on the store with one month till the expiration

This math makes it quite obvious why short-term options are so attractive. The next headache begins by trying to find the proper entry and exit. That is a lifelong battle for most traders.

Simple Trading Strategy

One of our favorite trading strategies is playing the zero line cross on the Market Mover Indicator. Most indicators can be read to take advantage of this opportunity, but our indicator will light up, making it easier for traders. A simple strategy paired with short-term options can be a huge opportunity.

Short Term Options Strategy

Massive Risk and Reward

This strategy of scalping or swing trading short-term options is a unique strategy because of the polar difference between risk and reward. These option trading strategies have the potential to rise 100-1000% in a very short time frame. Sometimes this can be achieved within one hour with a zero-day option.

The picture below is a screenshot of profits while trading live with our premium options trading group. This profit was seen in just 15 minutes and even after selling these options continued to run almost 1000% within the hour. Short-term options offer this potential and can really enhance an options trader's portfolio is utilized intelligently.

risk and reward

These quick gains also mean that the option can lose value just as quickly, which can result in a 50-90% loss. The downside to short-term options needs to be understood and respected in terms of a stop loss. This strategy needs to be avoided by traders who cannot take losses unemotionally and quickly.

#3 Option Trading Strategies: Cash Secured Puts

Reward Ranking: 4

Safety Rating: 8

Overall Rating: 12

A cash-secured put is an options strategy where you sell a put option. Only if the stock price of the underlying stock falls below the strike price of the option you will be assigned and will have to purchase shares at that strike price. This stock drop will allow the trader to get underlying at a discount which is a massive advantage of this strategy.

Cash-Secure Put Example

The chart below shows the profit and loss potential from a cash-secure put. As long as the stock price stays above the short put strike price, the trader will gain the full premium paid from the option decay.


If the stock falls under the breakeven point, investors could lose 100% of their capital. This would only happen if the stock fell to zero. The potential for a total loss is dependent on the stock chosen. Unprofitable small-cap companies have a higher chance of going to zero than higher market profitable companies.

The risk of a cash-secured put is largely decided by the investor and their level of comfortability. Some cash-secured put scanners can find stocks yielding 5-10% return on capital. Unfortunately, the higher return comes with greater risk as these are stocks that can fall the most.

cash secured puts scanner

ARKK Cash-Secure Put Strike Price Example

The example below is an ARKK cash-secured put with 30 days till expiration. The details of this trade are as follows:

  • Days till expiration: 30
  • The strike price of CSP: $55
  • Total Premium Possible: $244
  • Return on Capital Possible: 4.4%
  • Break-even point: $52.56
  • Stock Discount Potential: 12.8%

This example can easily highlight the appeal of this strategy as the trader can purchase this stock for a possible 13% discount or collect a 4.4% return on their capital if the option stays above the $55 strike price. This seems like a win-win!

cash secured puts

Passive Income Potential

The idea behind this strategy is to receive the net premium paid from selling the option and then be able to purchase shares of the underlying at a lower strike price if you are assigned. This allows the trader to capitalize on passive income from option decay. If a trader is looking to buy a stock, this is a very simple way to buy that stock at a discount. The stock can be purchased for as much as 1-15% lower when utilizing these puts.

Missed Opportunity

If done correctly, this can be a very profitable trade, but it does come with some risk. If the stock price of the underlying security increases, you could miss out on gains.

The net premium received from the option will never match the possible gains from owning the stock. This makes this strategy good in bearish market conditions when an investor wants to act defensively.

The reward rating for the cash-secured put is relatively low because of how much capital is being tied up. This money could work much faster with a variety of different options strategies.

Some of these strategies even offer less risk and more reward. Those strategies we will list below. Just stock appreciation could quickly return more than a cash-secured put.

Due to all of these factors, this is a mid-rated strategy from our perspective. The cash-secured put offers passive income potential lower risk, but does fail to maximize the capital used.

#2 Options Trading Strategies: Covered Calls

Reward Ranking: 6

Safety Rating: 8

Overall Rating: 14

A covered call is an options trading strategy where you sell a call option and at the same time own the underlying security. This trade is often used when a trader expects the strike price of the underlying stock price to remain relatively stagnant or even increase slightly.

Passive Income Potential

The idea behind this strategy is that you will generate income from selling the option premium paid. This allows the trader to capitalize on passive income from option decay. Many people are invested in the stock market, and the act of adding a covered call option is relatively low risk and easy. The covered call allows investors who don't have the time to trade to quickly create this income stream.

covered calls

ARKK Covered Call Example

The example below is an ARKK covered call with 30 days till expiration. The details of this trade are as follows:

  • Days till expiration: 30
  • The strike price of CSP: $63
  • Premium Possible: $278
  • Return on Capital Possible: 4.6%
  • Return on Capital if Assigned: 13%
  • Break-even point: $65.76

This example can easily highlight the appeal of this strategy as the trader can sell their stock rises for a possible 13% gain instead of a 5% gain or collect a 4.6% return on their capital if the option stays below the $55 strike prices. This seems like a win-win!

Increased Return on Capital from Underlying Stock

While this option sold is closer to the stock price, the covered call option return will always beat that of a cash-secured put because the appreciation of the rising stock price is added in. The cash-secured put strategy involves holding cash instead of stock which can limit the return for the trader if the stock rises or falls dramatically.

creating a covered call

Protection on Stock

A covered call allows investors to de-risk and protects investments during times of uncertainty. These situations could be during stock earnings or general economic fear, uncertainty, and doubt. Adding a covered call to your stock can limit the downside, but only to a certain extent.

The one downside to a covered call as protection is that the call option does not protect the investor from all losses. More or so, cushions the fall as the stock goes through a correction or recession. The covered call protection is an added bonus for investors who are looking to achieve passive income at the same time.

Due to all of these factors, this is a mid-rated strategy from our perspective. The covered call option can generate income potential lower risk but does fail to fully protect the trader when the stock falls.

#1 Options Trading Strategies: Leaps

Overall Rating: 17

Safety Rating: 7

Reward Ranking: 10

The major benefit of option trading with LEAPS is the ability to purchase expiration dates up to three years. If you have a longer-term outlook for a stock or index, LEAPS gives you the ability to profit from holding longer, providing greater percentage gains than shorter-term options.

Leap options are our favorite options strategy due to reward and risk. The upside potential greatly outweighs the downside but there as some things to be aware of before blindly buying these long-term options, which we will discuss next.

Insane Reward Potential

Leap options have seen some of the highest returns of all investments possible. These GME options have seen 1,000-90,000% returns in the example below. While this is unlikely for every trade, this opportunity is still incredible given the right market conditions. Unfortunately, these options can also see major losses quickly without the right market conditions.

reward potential of a covered call

Minimal Time Decay

Leap options are not like traditional options where the investor has to be worried about time decay. The time decay is extremely minimal for these options because of how far away the expiration date is. In addition, the strike price to hold this leverage is relatively low compared to shorter-term options that could lose 3-5% value per day.

This options straightforward strategy safety is rated high because of the relatively low time decay, extended expiration date, and possible return; even though these options could lose 50% in value, because of the large amount of time till expiration, there is still a possibility of profit.

Need Market Direction

The stock market, in general, goes up over time, but there are 3-6 month periods where the market corrects or enters a recession. During these moments, the value of a leap option can be significantly destroyed. Therefore, reading market direction can be quite hard. We want to give you our top indicator strategies to gauge the direction.

  • Ripster Ema Clouds: green and blue clouds will indicate a bullish market, while red and yellow clouds will indicate a bearish market. Leap options are best to only hold during these bullish indications.
  • Market Mover Indicator: Yellow candles indicate a bullish market, while blue candles indicate a bearish market. Leap options are best only to hold when yellow candles are presented if you want to try the Market Mover indicator for ten days, please click here.

stock market direction

Due to all of these factors, this is the highest-rated appropriate strategy from our perspective. The leap option offers the best of all worlds in risk and reward.

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