Zerodha (Trading & Demat Account)
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Zerodha (Trading & Demat Account)
FREE Equity Delivery and MF
Flat ₹20/trade Intra-day/F&O
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Compare Collar and Long Call Butterfly options trading strategies. Find similarities and differences between Collar and Long Call Butterfly strategies. Find the best options trading strategy for your trading needs.
| Collar | Long Call Butterfly | |
|---|---|---|
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| About Strategy | A Collar is similar to Covered Call but involves another position of buying a Put Option to cover the fall in the price of the underlying. It involves buying an ATM Put Option & selling an OTM Call Option of the underlying asset. It is a low risk strategy since the Put Option minimizes the downside risk. However, the rewards are also limited and is perfect for conservatively Bullish market view. Suppose you are holding shares of SBI currently trading at Rs 250. You can deploy a collar strategy by selling a Call Option of strike price Rs 300 while at the same time purchasing a Rs 200 strike price Put option. If the price rises to Rs 300, your benefit from increase in value of your holdings and you will lose net premiums. If the price falls... Read More | Long Call Butterfly is a neutral strategy where very low volatility in the price of underlying is expected. The strategy is a combination of bull Spread and bear Spread. It involves Buy 1 ITM Call, Sell 2 ATM Calls and Buy 1 OTM Call. The strike prices of all Options should be at equal distance from the current price. Suppose Nifty is currently trading at 10400. You expect very little volatility in it. You can implement the Long Call Butterfly by buying 1 ITM Call Option at 10300, selling 2 ATM Nifty Call Options at 10400, buying 1 OTM Call Option at 10500. Ensure that strike prices of Options are at equidistance. Your loss will be limited to the net premium paid on 4 positions while profit will be limited to strike price of short calls.... Read More |
| Market View | Bullish | Neutral |
| Strategy Level | Advance | Advance |
| Options Type | Call + Put + Underlying | Call |
| Number of Positions | 3 | 4 |
| Risk Profile | Limited | Limited |
| Reward Profile | Limited | Limited |
| Breakeven Point | Price of Features - Call Premium + Put Premium | |
| Collar | Long Call Butterfly | |
|---|---|---|
| When to use? | The Collar strategy is perfect if you're Bullish for the underlying you're holding but are concerned with risk and want to protect your losses. |
This strategy should be used when you're expecting no volatility in the price of the underlying. |
| Market View | Bullish When you are of the view that the price of the underlying will move up but also want to protect the downside. |
Neutral Neutral on the underlying asset and bearish on the volatility. |
| Action |
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| Breakeven Point | Price of Features - Call Premium + Put Premium |
Upper Breakeven = Higher Strike Price - Net Premium Lower Breakeven = Lower Strike Price + Net Premium |
| Collar | Long Call Butterfly | |
|---|---|---|
| Risks | Limited You will incur maximum losses when price of the underlying is less than the strike price of the Put Option. Max Loss = Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received |
Limited Risk in the Long Call Butterfly options strategy is limited to the net premium paid. |
| Rewards | Limited You will incur maximum profit when price of underlying is greater than the strike price of call option. Max Profit = Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received |
Limited Rewards in the Long Call Butterfly options strategy is limited to the adjacent strikes minus net premium debit. |
| Maximum Profit Scenario | Underlying goes up and Call option exercised |
Only ITM Call exercised |
| Maximum Loss Scenario | Underlying goes down and Put option exercised |
All options exercised or all options not exercised. |
| Collar | Long Call Butterfly | |
|---|---|---|
| Advantages | It protects the losses on underlying asset. |
Profit earning strategy with limited risk in a less volatile market. |
| Disadvantage | The profit is limited |
Premiums and brokerage paid on multiple position may eat your profits. |
| Simillar Strategies | Covered Put Bull, Call Spread, Bull Put Spread |
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