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BaiDao Options Mini-Class 02 | Are There Really Only Four Moves in Options? An Introduction to the 'Four Option Strategies'

Every Wednesday, the 'Hundred Moves Mini-Class' kicks off on time! Starting from scratch, each session dives deep into just one concept—progressing step by step, from simple to sophisticated. Learn one episode at a time, and you’ll find options aren’t as hard as they seem!

In addition to Wednesday’s mini-class, we also have 'Opportunity Pool' on Mondays to discuss potential trade ideas, and 'Mini Recap' on Fridays to break down the week’s cases—each of the three segments has its own focus, and they work even better when used together.Follow Bull Bull’s official 'Hundred Moves Options Play' account so you never miss an update~

Options seem complicated? Actually, there are only four basic moves.

Last time, we covered Buffett 'selling puts,' the Pelosi family 'buying calls,' and Burry 'buying puts'—three big names, three different strategies.

Fellow investors may have already noticed:Why is it sometimes 'buy' and sometimes 'sell,' sometimes 'call' and sometimes 'put'? Feeling a bit dizzy?

Don’t worry. In today’s episode, we’ll clarify the most fundamental and essential classification in the world of options. Once you understand this, you’ll realize:No matter how flashy an options strategy looks, it always boils down to just four basic moves—we call them the 'Four Options Moves.'

First cut: There are two types of options—calls and puts.

An option is essentially a 'contract of rights.' And there are only two directions for these rights:

Call option = right to buy

Holding it gives you the right to buy at a predetermined price in the futureBuyUnderlying stock. Used when bullish.

Put option = Right to sell

By holding it, you have the right to sell at a predetermined price in the futureSellUnderlying stock. Used when bearish.

For example:

A call is like a 'letter of intent to purchase a house'—you lock in a price; if the market price rises later, you still have the right to buy at the original, lower price;

A put is like a 'return guarantee'—you lock in a selling price; if the market price drops later, you still have the right to sell at the higher, agreed-upon price.

Remember this mnemonic:Call for bullish, Put for bearish。This is the first dividing line in the world of options.

Second cut: Trading has two directions—buying and selling

Knowing just calls and puts isn't enough, because for each type of option, you can chooseBuyorSell：

Buying an option (Long) = Paying for a right

You pay a 'premium' to obtain the right to act in the future. You hold the initiative—you can exercise the option if you want to, or let it expire; at worst, you lose only the premium.

Selling an option (Short) = Receiving money and taking on an obligation

You collect the 'premium' paid by someone else, but you also assume an obligation—if the counterparty exercises the option, you must fulfill it. The benefit is that you receive cash upfront; the risk is that you may later be required to perform.

Here’s another analogy:

The buyer is like 'someone buying insurance'—they pay a premium for protection, and the worst outcome is that the premium goes to waste;

The seller is like 'an insurance company'—they collect premiums upfront as profit, but must pay out if a claim occurs.

Remember the second dividing line:The buyer pays the premium and has limited risk; the seller receives the premium and assumes an obligation.。

Combining them in pairs gives the 'four basic option strategies.'

Two types of options (Call / Put) × Two directions (Buy / Sell) = Four basic positions. Let’s go through each one first.If you still feel a bit confused after reading this, don’t worry—we’ll cover each of these four basic strategies in detail, one by one, in upcoming posts:

① Long Call — Bullish, leveraging small capital for potentially large gains

Your outlook: The stock price will rise

Your action: Pay a premium to obtain the right to buy the stock at a predetermined price

Profit and loss profile: The more the stock price rises, the more you profit; maximum loss is limited to the premium paid

This was covered in the previous issueThe Pelosi familyemploys this strategy—spending a small amount to potentially capture amplified gains from a rising stock price. Suitable when you’re bullish on direction and want leverage.

Real-life analogy: You spend $10 on a concert 'priority ticket purchase voucher.' If tickets get resold at sky-high prices, you can still buy at face value and make a huge profit; if the concert is canceled, you lose only that $10.

② Buy a put (Long Put) – Bearish bet with limited downside risk

Your view: The stock price will fall

Your action: Pay a premium to gain the right to sell the stock at the agreed-upon strike price

Profit and loss profile: The more the stock price falls, the more you profit; maximum loss is limited to the premium paid

This was featured last issueThe Big Short— using a limited premium to bet on a sharp decline. Safer than short selling via margin, as losses are capped. Ideal when you're bearish on an underlying asset but worried about a short squeeze.

③ Short Put — mildly bullish/neutral stance, collect premium while waiting to acquire the stock

Your outlook: You believe the stock price won’t drop sharply, and you’re even willing to buy it at a lower price

Your action: Collect the premium and assume the obligation that the counterparty may require you to buy the stock at the agreed-upon price

Profit/Loss Profile: Earn the premium steadily if the stock doesn't drop; if it plunges sharply, you'll be required to buy at the strike price (potentially incurring significant losses)

This is Warren Buffett's 'premium-collecting accumulation strategy' from last issue—collect cash while waiting for the stock price to fall to your target level. If it drops, you buy at a discount; if not, you keep the premium risk-free. Ideal for situations where you 'already want to buy the stock but think it's too expensive.'

④ Short Call — Mildly bearish/neutral outlook; collect premium while setting a profit-taking exit

Your view: The stock price won't surge significantly, or you're willing to sell your holdings at a certain higher price

Your action: Collect the premium and assume the obligation that the counterparty may require you to sell the stock at the agreed-upon price

Profit/Loss Profile: If the stock doesn’t rise, you safely keep the premium; if it surges sharply, you might be forced to sell at a lower strike price (missing out on further gains), and in the case of a naked short call, you could face theoretically unlimited losses.

A common application of this strategy is the 'covered call' (holding the stock + selling a call option), which effectively sets an automatic profit-taking level for your shares while earning monthly 'rent.' It’s suitable when you already hold the stock and don’t expect a significant rally in the short term.

In summary: these four basic actions are the 'atoms' of all options strategies.

No matter how complex the strategy you learn later—bull spreads, iron condors, straddles, butterflies—at the most fundamental level, they’re all combinations of these four basic actions. Just like LEGO bricks: only a few types of pieces, but infinite ways to assemble them.

In this episode, you only need to remember two things:

Calls are bullish; Puts are bearish.；

The buyer pays for the right; the seller receives payment and assumes the obligation.

What you can do now:

Open NiuNiu and pick a stock you’re familiar with (for example, $Apple (AAPL.US)$ 、 $Tesla (TSLA.US)$ 、 $NVIDIA (NVDA.US)$ Open the options chain and try to identify: which side is Call and which side is Put? On the trading interface, what’s the difference between 'Buy' and 'Sell'? First, match today’s four basic positions accordingly.

Don’t want to jump in with real money right away? No problem—Futubull also offers an 'Options Paper Trading' feature. Use virtual funds to practice first, get comfortable with placing orders, exercising options, and handling expirations. Once you’ve practiced enough, you can move to live trading.

Options involve risk, but only by understanding them can you truly master them. See you in the next episode!

Finally, we’ve got a little perk for our fellow investors—feel free to claim it!Options Starter Pack～

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Disclaimer

This content does not constitute an offer, solicitation, recommendation, advice, opinion, or any form of guarantee regarding any securities, financial products, or instruments. Trading options carries substantial risk of loss. In certain scenarios, your losses may exceed the initial margin deposit. Even if you set contingency instructions such as 'stop-loss' or 'limit orders,' these may not necessarily prevent losses, as market conditions could render such instructions unexecutable. You may be required to deposit additional margin on short notice. If you fail to meet the margin call within the specified timeframe, your open positions may be liquidated. Nevertheless, you remain fully liable for any resulting deficit in your account. Therefore, prior to trading options, you should thoroughly study and understand options trading and carefully consider whether such trading aligns with your financial situation and investment objectives. If you do trade options, you must become familiar with the procedures, rights, and obligations associated with exercising options and their expiration.

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