9 Derivative Strategies from Call Buy to Futures Short, When to Use Them?

There is only one rule!!! A derivative strategy must have a clear objective.

What are derivatives?

Derivatives are contracts whose value depends on the price of an underlying asset.

Retail investor:

"If I use leverage, do I always make money?"

No, leverage and directional bets amplify both gains and losses.

Nine basic strategies summarized

1) Call buy

The simplest way to buy an option, profitable when the underlying rises.

Use: when you have a strong bullish view and want limited downside risk.

2) Put buy

An option purchase that profits from declines.

Use: when you need downside insurance (hedge) or want to bet on a drop.

3) Covered call

Holding the underlying plus selling a call to earn premium income.

Use: for conservative income, effective in sideways or mild up markets.

4) Protective put

Holding the underlying plus buying a put to protect the downside.

Use: when you want to limit downside risk on holdings.

5) Long straddle

Buying a call and a put at the same strike price.

Use: useful when large volatility is expected but direction is uncertain.

6) Long strangle

A cheaper variant by buying call and put at different strikes.

Use: when you expect a big move but want to save on cost.

7) Butterfly spread

An option combination that maximizes profit near the middle price.

Use: when you expect the price to stay within a specific range.

8) Call (or put) spread

Buying and selling options in the same direction to reduce cost and risk.

Use: when you see directionality but want to avoid unlimited upside/downside risk.

9) Futures long/short

The most direct position, agreeing to buy or sell at a future price.

Use: when you need price certainty or want to leverage a directional bet.

Which to use when?

High market volatility → check long straddle/strangle first.

Conservative income approach → consider covered calls or spread strategies.

Need downside protection → protective put or futures short are alternatives.

What are the risks?

Options lose value from time decay, so no price move by expiry causes losses.

Futures carry forced liquidation risk due to margin requirements.

Margin → forced liquidation can occur if margin is insufficient.

So where do you start?

→ 1. Write down the objective first: classify as hedge or speculation in one line.

→ 2. Set numeric loss limits: separate daily and total position limits.

→ 3. Test the strategy with small amounts or paper trading.

This is for reference only.

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※ This article is for informational purposes and is not investment advice.

※ Investment decisions and responsibility lie with the investor.

※ Figures are as of the time of writing and may change.

This article is for informational purposes and is not investment advice.