Three strategic setups using July options

Each of the following strategies uses the 18 July 2025 expiry. These are straightforward, limited-risk trades tailored to different market outlooks.

Important note: The strategies and examples described are purely for educational purposes. They assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor must conduct their own due diligence, considering their financial situation, risk tolerance, and investment objectives before making decisions. Remember, investing in the stock market carries risks, so make informed decisions.

1. Bullish view: Short put spread (18 July 2025 expiry)

Outlook: You expect XOP to remain above current levels or gradually trend higher.

• Sell 134 put, Buy 120 put
• Premium received: ~$4.15
• Maximum profit at expiration: $415 if XOP stays at or above $134
• Maximum loss at expiration: $985 if XOP falls below $120
• Break-even point at expiration: $129.85

This strategy benefits from elevated put premiums and provides a cushion of nearly 4% below the current spot price. It is often preferred over a long call spread in this type of environment because put premiums are typically more inflated during periods of high market anxiety—allowing bullish investors to collect premium rather than pay it. Additionally, short put spreads benefit from time decay and declining volatility, both of which are common after sharp news-driven spikes.

For the technically inclined: this position carries positive theta, negative vega, and positive delta. It performs best in a rising or stable market with implied volatility mean-reverting. The short strike (134) sits close to at-the-money, generating most of the credit, while the long 120 put defines risk and lowers margin requirements. The spread’s delta profile gradually increases as XOP moves higher, offering a dynamic advantage if spot trends upward before expiration.

2. Neutral view: Iron condor (18 July 2025 expiry)

Outlook: You believe the recent rally may pause, and expect volatility to decrease.

• Sell 128 put & 142 call, Buy 118 put & 155 call
• Premium received: ~$3.45
• Maximum profit at expiration: $345 if XOP stays between $128–142
• Maximum loss at expiration: $955
• Break-even points at expiration: $128.55 and $145.45

The iron condor collects premium on both sides, and works best if XOP consolidates. It also benefits from time decay and a possible decline in implied volatility. In an uncertain environment where traders expect movement to stall but volatility remains elevated, this strategy allows you to profit from the passage of time and the reversion of option prices toward normal levels.

Technically speaking: this position has near-zero delta, positive theta, and negative vega. It benefits from time passing and implied volatility falling, with maximum profit if the underlying stays within the sold strikes. The short strikes (128 and 142) define the core range, while the long wings (118 and 155) cap the potential losses. Risk is symmetric, and gamma risk increases as price approaches either short strike nearing expiration.

3. Bearish view: Long put spread (18 July 2025 expiry)

Outlook: You anticipate a reversal or pullback in XOP over the coming weeks.

• Buy 134 put, Sell 120 put
• Premium paid: ~$4.20
• Maximum profit at expiration: $980 if XOP declines to $120 or lower
• Maximum loss at expiration: $420
• Break-even point at expiration: $129.80

This defined-risk structure provides downside exposure without the need to short shares or take on unlimited risk. It is typically favoured over a short call spread in high-volatility situations because buying puts offers greater convexity and avoids the margin risk of being short upside. If implied volatility rises further or markets sell off abruptly, long puts (and put spreads) tend to outperform, while short calls can become vulnerable to sudden spikes.

From a technical standpoint: the spread is long delta-negative, theta-negative, and vega-positive. It profits from a downward move in the underlying and/or a rise in implied volatility. The long 134 put acts as the primary driver of gains, while the short 120 put limits max profit but reduces upfront cost. Risk is capped, and the trade gains value more rapidly as XOP accelerates lower toward the short strike.

Final thoughts

The market is struggling to price geopolitical uncertainty—and that’s exactly where options strategies can help. Each of these structures offers:

• Clearly defined risk and reward
• Efficient use of capital
• Exposure tailored to your market view

Whether you expect oil prices to continue higher, stall, or reverse, there’s a strategy to express your view without overexposing your portfolio.

Understanding the risk-reward profiles of these trades—and when to use credit versus debit structures—is a critical skill in options trading. Take this as an opportunity to sharpen your strategic thinking in volatile markets.