Classification of strategies

Option strategies can be classified based on several factors such as the number of options used, the expiration date of the options, and the underlying asset. Some common classifications of option strategies include:

• Directional Strategies: Strategies that are based on predicting the direction of the underlying asset's price movement, either up or down. These include Bullish, Bearish, and Neutral strategies.
• Spread Strategies: Strategies that involve using multiple options with different strike prices or expiration dates to hedge the risk of the underlying asset. Some common spread strategies include vertical spreads, horizontal spreads, and diagonal spreads.
• Volatility Strategies: Strategies that focus on profiting from changes in the volatility of the underlying asset. These include strategies like the long straddle, long strangle, and short straddle.
• Combination Strategies: Strategies that involve combining two or more option strategies to create a new strategy with a specific objective. These include strategies like the iron butterfly and iron condor.

Complex strategies are usually classified based on their strike prices and expirations relative to each other. The lesson shows the difference between vertical, horizontal, and diagonal spreads and the aspects of the classification.