NISM Series VIII, Chapter 6. Updated Jun 2026, 12-minute read.

Option Strategies — Spreads, Straddles and Strangles

Option strategies combine multiple options (and sometimes the underlying) to create specific risk/reward profiles. Chapter 6 of NISM Series VIII covers the strategies that appear most often in the exam and real-world trading.

Key takeaways

Bull Call Spread: buy lower-strike call, sell higher-strike call — limited profit, limited loss, bullish view
Bear Put Spread: buy higher-strike put, sell lower-strike put — limited profit, limited loss, bearish view
Straddle: buy ATM call + ATM put (same strike, same expiry) — profits from large moves in either direction
Strangle: buy OTM call + OTM put — cheaper than straddle, needs larger move to profit
Covered Call: long underlying + short call — generates premium income, caps upside
Protective Put: long underlying + long put — portfolio insurance against downside
Iron Condor: short strangle + long strangle (wider) — profits in range-bound markets

Directional Strategies

Bull Call Spread

Buy a lower-strike call and sell a higher-strike call (same expiry). Net cost = premium paid − premium received.

Max profit = (Higher strike − Lower strike) − Net premium paid
Max loss = Net premium paid
Best used when moderately bullish — don't expect a huge rally

Example: Buy Nifty 23,000 Call (₹200) + Sell Nifty 23,500 Call (₹80). Net cost = ₹120. Max profit = 500 − 120 = ₹380. Max loss = ₹120.

Bear Put Spread

Buy a higher-strike put and sell a lower-strike put (same expiry). Net cost = premium paid − premium received.

Max profit = (Higher strike − Lower strike) − Net premium paid
Max loss = Net premium paid
Best used when moderately bearish

Volatility Strategies

Long Straddle

Buy an ATM call AND an ATM put at the same strike and expiry.

Cost = Call premium + Put premium
Profitable when spot moves significantly in either direction beyond the break-even points
Upper break-even = Strike + Total premium; Lower break-even = Strike − Total premium
Max loss = Total premium paid (if spot stays exactly at strike at expiry)

Use case: Before a major event (budget, RBI policy, earnings) when direction is unknown but volatility is expected.

Long Strangle

Buy an OTM call AND an OTM put (different strikes, same expiry).

Cheaper than straddle (both options are OTM)
Needs larger move to profit — wider break-even points
Same logic as straddle but with lower cost and lower probability of profit

Income Strategies

Covered Call

Hold the underlying stock/ETF AND sell a call option against it.

Generates premium income in flat/mildly bullish markets
Limits upside beyond the strike price
If stock is called away, profit = (Strike − Purchase price) + premium received

Protective Put

Hold the underlying AND buy a put option (portfolio insurance).

Cost = Put premium paid (the "insurance premium")
Limits downside below the put strike
Upside participation unlimited (only reduced by premium paid)

Range-bound Strategies

Iron Condor

Sell a strangle (short OTM call + short OTM put) and buy a wider strangle for protection.

Max profit = net premium received (when spot stays within the short strikes)
Max loss limited = width of spread − net premium received
Best in low-volatility, range-bound markets

Frequently asked questions

When should you use a straddle vs a strangle?

Use a straddle when you expect a large move but want the highest probability of profit — it profits from any significant move. Use a strangle when you expect an even larger move and want to spend less premium. Strangles are cheaper but need bigger moves to profit.

What is the maximum risk in a covered call?

The maximum risk in a covered call is effectively the same as holding the stock — the stock could go to zero. The premium received partially offsets losses. The risk is that you miss out on large upside if the stock rallies beyond the strike price.

Written by Arpan Das.

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