REX Learning Center
Options, Explained
Every strategy here is built from four simple trades. Ten strategies, explained in plain English, each with its classic payoff diagram.
How to use this page
Four trades build everything.
The long call, long put, short call and short put are the alphabet. Covered calls, straddles, butterflies and iron condors are just words spelled with them. Start at Level 01 and each strategy that follows will feel familiar.
Reading a payoff diagram
Profit sits above the center line, loss below. Best case, worst case and break even, all in one picture.
Jump anywhere
Work top to bottom or use the nav above. It follows you down the page and tracks where you are.
Level 01
Foundations
The four single-leg building blocks: long call, long put, short call, short put.
Level 02
Core Strategies
The covered call and the protective put. Two ways to pair stock with one option.
Level 03
Advanced
Multi-leg volatility structures: straddle, strangle, butterfly, iron condor.
Level 01 / Foundations
The Four Building Blocks
Two directions, two sides of the trade. Master these four and every structure below is a combination you already know.
Bullish / Defined Risk
Long Call
Profit Unlimited / Loss Capped
Buying the right to purchase a stock at a set strike. The most you can lose is the premium paid, while the upside is theoretically unlimited.
Bearish / Defined Risk
Long Put
Profit Substantial / Loss Capped
Buying the right to sell a stock at a set strike. It gains value if the stock falls, and the most you can lose is the premium paid.
Bearish / Undefined Risk
Short Call
Profit Capped / Loss Unlimited
Selling a call without owning the stock. It collects premium up front, but it carries theoretically unlimited risk if the stock rises.
Bullish / Defined Downside
Short Put
Profit Capped / Loss Substantial
Selling a put to collect premium. You keep the premium if the stock stays above the strike, and you are obligated to buy if it falls below.
Level 02 / Core Strategies
Pair the Stock With One Option
The covered call earns premium from shares you already own. The protective put insures them. These two power most income and hedging strategies, including REX covered call ETFs.
Premium Selling
Covered Call
Profit Capped / Loss Substantial
Own the stock and sell a call against it. It collects premium and caps the upside above the strike.
Hedging
Protective Put
Profit Substantial / Loss Capped
Own the stock and buy a put for downside protection. It works like insurance: it costs premium, but it caps the loss if the stock falls below the strike.
Level 03 / Advanced
Multi-Leg Volatility Structures
These four trade volatility instead of direction. Two profit when the stock moves big. Two profit when it stays put. Spot the building blocks from Level 01 inside each one.
Long Volatility
Straddle
Profit Substantial / Loss Capped
Buy a call and a put at the same strike. It profits from a large move in either direction, and is often used around earnings.
Long Volatility
Strangle
Profit Substantial / Loss Capped
Like a straddle, but the call and put sit at different strikes. It is cheaper to put on and needs a bigger move to pay off.
Low Volatility / Defined Risk
Butterfly
Profit Capped / Loss Capped
A three-strike structure that pays off if the stock lands near a target at expiration. Low cost, with a narrow profit zone.
Low Volatility / Defined Risk
Iron Condor
Profit Capped / Loss Capped
A four-leg structure that pays off if the stock stays inside a defined range. Premium is collected up front with both sides capped.
Frequently Asked
Options FAQ
Yes. Trading options directly requires a brokerage account with options approval, which involves an application and a suitability review. The strategies here are explained for education, not as a recommendation to trade.
It plots profit and loss at expiration against the stock price. Profit sits above the center line and loss below, so you can read the best case, the worst case and the break even at a glance.
A long call is buying a call: you pay premium for the right to buy at a strike. A short call is selling a call: you collect premium and take on the obligation to sell at the strike if assigned.
Both are long volatility plays for when you expect a big move but are not sure of the direction. They are common around earnings, regulatory decisions, or major macro events.
Selling options caps your upside while leaving you exposed to declines in the underlying. Buying options puts the full premium at risk if the expected move does not happen. Every strategy carries a different risk profile.
Work through the videos above, from the foundations to the advanced structures. Each one pairs the mechanics with its payoff diagram. Subscribe below for new education videos as they are posted.
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Important Information
This page is for educational purposes only. It is not investment advice or a recommendation to buy or sell any security. Consider your own objectives, risk tolerance and financial situation before investing.
Investing involves risk, including possible loss of principal. Options based strategies carry additional risks, including capped upside when a stock rises above the call strike, full participation in declines, and the risk that a strategy does not perform as intended.
