I have been writing about my options strategy for a while now the past couple of years. In 2023 and 2024, I wrote about Covered Calls and this year I have been more heavily focused on Net Credit Collar trading.
Someone asked me how I determine which strategy to use in what environment and I thought it was a great question so I decided to ask two different AI engines the same question. I gave them the chart below and asked them to tell me under what macro conditions (fed policy, unemployment, manufacturing) would each option strategy work best.
ChatGPT
OPTIONS STRATEGIES & THEIR OPTIMAL ECONOMIC CONDITIONS
- Bearish OTM Put
View: Moderately bearish
Best macro conditions:
- Economy slowing, ISM manufacturing contracting, rising unemployment
- Fed expected to cut rates (bearish for equities short-term) OR markets pricing recession
- Volatility expected to increase
- Bullish OTM Call
View: Moderately bullish, expecting upward momentum
Best macro conditions:
- Fed shifting toward rate cuts, improving financial conditions
- Manufacturing improving, unemployment steady or declining
- Low but rising volatility (cheap premiums with potential breakout)
- Call Time Spread (Calendar Spread – long near-term vol stability, long-term directional view)
View: Neutral near-term, directional long-term
Best macro conditions:
- Fed policy uncertain but stable
- Markets expecting a slow macro transition (soft landing, slow tightening)
- Near-term volatility expected to fall; long-term volatility expected to rise due to macro events (Fed meetings, elections)
- Put Time Spread
View: Neutral near-term but bearish long-term
Best macro conditions:
- Increasing recession risk (yield curve inversion, declining manufacturing)
- Fed expected to cut later but not immediately
- Near-term volatility elevated but expected to decline; long-term vol likely to rise
- Collar
View: Mildly bullish but protecting downside
Best macro conditions:
- Late-cycle expansion, rising risks of slowdown
- Fed uncertainty (possible hikes/cuts)
- Elevated volatility — makes put protection more valuable
- Covered Call
View: Mild bullish to neutral
Best macro conditions:
- Stable macro environment, slow growth
- Fed on hold or indicating no major surprises
- Low-to-moderate volatility — enhances call premium without high crash risk
- Double Diagonal
View: Long volatility + expecting gradual directional movement over time
Best macro conditions:
- Macro environment in flux (Fed meeting cycles, CPI releases, geopolitical uncertainty)
- Volatility expected to rise
- Manufacturing mixed, unemployment uncertainty
- Iron Condor
View: Strongly neutral
Best macro conditions:
- Stable economic environment
- Fed on hold, few market-moving events
- Volatility expected to decline or remain low
- Long Call Butterfly
View: Low volatility + expecting price to converge to a specific target
Best macro conditions:
Predictable macro path, e.g., mild disinflation
- Fed stable
- No strong growth/inflation surprises expected
- Volatility low or falling
- Cash-Covered Puts
View: Bullish with willingness to buy the asset lower
Best macro conditions:
- Economic growth stable or rising
- Fed likely approaching cuts (market bottoming conditions)
- Volatility elevated (premiums rich) but long-term fundamentals positive
- Long Put Butterfly
View: Expecting mild downward move toward a specific price
Best macro conditions:
- Weakening macro data but not a crash scenario
- Manufacturing declining, yield curve inversion
- Fed nearing but not yet in easing cycle
- Volatility low or moderate
- Long Straddle
View: Very large move expected in either direction
Best macro conditions:
- Major Fed announcements, CPI shocks, recession fears
- Volatility expected to rise sharply
- Markets pricing uncertainty (employment swings, PMIs contracting)
- Short Straddle
View: Strongly neutral, expecting small movement
Best macro conditions:
- Fed policy predictable
- Employment stable
- Manufacturing steady
- Volatility expected to decline after a previously tense macro period
- Long Vertical Call Spread
View: Bullish but minimizing cost
Best macro conditions:
- Economic growth improving
- Manufacturing turning up, unemployment steady
- Fed leaning dovish or pausing hikes
- Volatility moderate
- Long Vertical Put Spread
View: Bearish but cost-sensitive
Best macro conditions:
- Rising unemployment
- Falling PMI/manufacturing
- Fed likely to cut due to economic stress
- Volatility moderate to high
- Short Vertical Put Spread
View: Bullish to moderately bullish
Best macro conditions:
- Economic stabilization / early recovery
- Fed pausing or signaling cuts
- Volatility elevated (collect more premium) but expected to fall
- Short Vertical Call Spread
View: Mildly bearish
Best macro conditions:
- Slowing economic activity
- High-for-longer interest rate environment
- Elevated volatility providing premium cushion
- Manufacturing & consumer confidence weakening
Summary Table
| Strategy | Best Macro Environment |
|---|---|
| Bearish OTM Put | Recession fears, Fed cuts coming, rising unemployment |
| Bullish OTM Call | Economic expansion, improving PMIs, dovish Fed |
| Call Time Spread | Stable short-term, uncertain long-term macro |
| Put Time Spread | Short-term stability, long-term recession risk |
| Collar | Late-cycle risks, elevated vol |
| Covered Call | Slow stable growth, low volatility |
| Double Diagonal | Rising volatility due to macro uncertainty |
| Iron Condor | Low vol, stable Fed, no macro surprises |
| Long Call Butterfly | Low vol, predictable macro path |
| Cash-Covered Puts | Bullish long-term, elevated vol |
| Long Put Butterfly | Mild bearish tilt, not a crash |
| Long Straddle | Major macro events, high uncertainty |
| Short Straddle | Low vol, macro stability |
| Long Vertical Call Spread | Bullish, mild vol |
| Long Vertical Put Spread | Bearish, deteriorating data |
| Short Vertical Put Spread | Mild bullish, vol elevated but falling |
| Short Vertical Call Spread | Mild bearish, worsening macro |
Gemini
Gemini gave similar response to ChatGPT and rather than post all of the response, I am only including the summary table below.
| Strategy Group | Strategies from Image | Optimal Fed Policy | Unemployment Trend | Manufacturing (PMI) |
| Aggressive Bull | Bullish OTM Call, Long Vertical Call Spread | Cutting Rates | Low / Declining | Expanding (>50) |
| Aggressive Bear | Bearish OTM Put, Long Vertical Put Spread | Hiking Rates | Rising | Contracting (<50) |
| Income / Range | Iron Condor, Short Straddle, Butterfly, Short Vertical Spreads | Holding Rates Steady | Stable / Predictable | Flat |
| Protective | Collar | Fear of Hiking | Fear of Layoffs | Peaking |
| Volatility | Long Straddle | Pivot / Surprise Expected | Data Misses Expected | Volatile |
AI Fight Club
As I transition from ChatGPT to Gemini, I’ve decided to create a “fight club” to determine which one I think is the winner on the same question. In this case, I provided the same image and exact same prompt and ChatGPT gave a better more detailed answer than Gemini so this round goes to ChatGPT on the answer however Gemini offered to put the table in Google Sheets for me while ChatGPT offered a PDF version. Clearly a spreadsheet (or document file) would be better than a PDF version. I still give this round to ChatGPT though.
My Thoughts
The AI answers from both Gemini and ChatGPT are fairly correct but there are never any guarantees with anything. As you may notice, the more I soured on the economy the more I migrated away from covered calls to net credit collars which is what is recommended with Federal Reserve policy uncertainty or hiking (note the fed cut recently but it shouldn’t have!), rising unemployment and declining manufacturing which are exactly the conditions we are in now. But optimal trades moving forward may be bearish OTM put spreads.
Share The Wealth
Are you trading options right now and if so what’s your strategy? Let me know in the comments below.