Education · Part 2 of 3

Options strategies

Options are the tool YOLO uses most, because they let you know your worst case before you trade. This guide explains the building blocks and the strategies the platform generates.

The two building blocks

• Call option — the right to buy at a fixed price (the strike) until an expiry date. Calls gain value when the price rises.
• Put option — the right to sell at the strike. Puts gain value when the price falls.

Buying an option costs a premium — that premium is the most a buyer can lose. Selling (“writing”) an option collects the premium up front but can carry large risk on its own, which is why YOLO only uses short options inside structures where another leg caps the risk.

Defined risk vs undefined risk

Why YOLO chooses spreads over naked directional bets

A naked long call or put feels simple, and a bought option does have a capped loss (the premium). But naked options have two quieter problems YOLO designs around — and a sold naked option has a third, fatal one.

• A naked long option overpays for time and volatility. You pay the full premium, and theta (time decay) works against you every day. If the move is slower or smaller than hoped, you can be directionally right and still lose. Selling a further-out strike against your long — a spread — refunds part of that premium and part of that decay.
• A naked short option has open-ended risk. Selling a call or put alone collects a small premium but exposes you to an uncapped loss if the market runs against you. This is reason R1 (naked / undefined risk), and YOLO excludes it for retail by default. Whenever the engine wants to sell premium, it always buys a protective wing so the loss is capped — that is what turns a dangerous short into a credit spread.
• Spreads make the worst case a contractual fact. With two legs, the far leg caps what the near leg can lose. The max-loss is fixed the moment you open — nothing to estimate, nothing that a weekend gap can blow through. That is exactly the defined-risk property YOLO is built on.

The trade-off is that a spread caps your upside too. YOLO takes that deal on purpose: a known, bounded outcome you can size and survive beats an unbounded one that occasionally ends the account.

Max loss, breakeven & POP — per structure

Every structure states the same three numbers a different way. A concrete example: a stock at £100, buying the £100 call for £5 and selling the £105 call for £3 (a bull call spread):

• Max loss = your net cost, £2 per share (£5 paid − £3 collected). Even if the stock goes to zero, that is all you lose.
• Max profit = the £5 strike width − £2 cost = £3, if the stock finishes at or above £105.
• Breakeven = lower strike + cost = £102. Below it the trade loses (floored at −£2); above it the trade gains (capped at +£3).
• POP (probability of profit) = a model estimate of how often the trade finishes past breakeven, from the option’s own implied volatility. For credit structures POP is typically higher and max-profit lower; for debit structures the reverse. It is an estimate, never a promise.

For a credit spread the mirror holds: max loss = strike width − credit received, max profit = the credit, and you keep it if the price stays your side of the short strike.

Strategies you will see on YOLO

The numbers on every setup card

• Max loss — the most the position can lose, in pounds. The number to check first, every time.
• Max profit — the best case, also fixed for defined-risk structures.
• Breakevens — the price(s) at expiry where the trade neither makes nor loses money. Marked on every payoff diagram.
• Probability of profit (POP) — a model estimate of how often the trade ends profitable. An estimate, not a promise.

Reading a payoff diagram

Every YOLO setup includes a payoff diagram: the horizontal axis is the underlying price at expiry, the vertical axis is your profit or loss. The shaded red region is where the trade loses (floored at max loss for defined-risk structures), the green region is profit, and the breakeven points are labelled where the line crosses zero.

The greeks, briefly

Option prices respond to more than the underlying price. Four sensitivities — the greeks — describe how:

• Delta — how much the option moves per £1 move in the underlying. Also a rough proxy for the odds it expires in the money.
• Theta — time decay: what the position gains or loses per day as expiry approaches.
• Vega — sensitivity to implied volatility changes.
• Gamma — how fast delta itself changes; high near expiry at the money.

You do not need to manage greeks yourself — the strategy engine selects strikes and expiries using them — but knowing the words helps you read a setup’s rationale.

How the engine picks your 2–3 candidates

For each expert signal, YOLO’s quant engine doesn’t hand you one trade — it generates several defined-risk structures that match the signal’s direction, scores them, and surfaces the best 2–3. Two inputs shape the shortlist:

• Your risk profile. A conservative profile favours tighter-risk, higher-POP structures (narrow credit spreads, condors) and sizes them to a smaller slice of capital; a more aggressive profile allows wider or more directional defined-risk structures. Either way the structure is capped-loss and sized to your budget — see Risk Management.
• The implied-volatility (IV) regime. When option premiums are expensive (high IV), buying premium outright is costly, so the engine leans toward structures that sell richly-priced premium with a protective wing (credit spreads, condors). When premiums are cheap (low IV), debit structures like bull call / bear put spreads get relatively better value. A macro-regime overlay adds market context on top.

You then compare the shortlist on the numbers that matter — max loss, breakevens, POP and the payoff shape — and approve the one that fits. The engine narrows the field; the decision stays yours.

Related

Next: Risk Management — the discipline that decides whether any of this makes money.

Signed in? The full strategy catalogue lists every family the engine can propose — what triggers each one, exactly what you can lose, and how to manage it.

Go deeper: Defined vs undefined risk · Reading a trade setup · Trading Basics · Back to all guides