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Collar Vs Long Call Butterfly Options Trading Strategy Comparison

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 Vs Long Call Butterfly

  Collar Long Call Butterfly
Collar Logo Long Call Butterfly Logo
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

When and how to use Collar and Long Call Butterfly?

  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
  • Buy Underlying
  • Buy 1 ATM Put Option
  • Sell 1 OTM Call Option

  • Sell 2 ATM Call
  • Buy 1 ITM Call
  • Buy 1 OTM Call

Breakeven Point Price of Features - Call Premium + Put Premium

Upper Breakeven = Higher Strike Price - Net Premium

Lower Breakeven = Lower Strike Price + Net Premium

Compare Risks and Rewards (Collar Vs Long Call Butterfly)

  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.

Pros & Cons or Collar and Long Call Butterfly

  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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