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Collar Vs Long Straddle (Buy Straddle) Options Trading Strategy Comparison

Compare Collar and Long Straddle (Buy Straddle) options trading strategies. Find similarities and differences between Collar and Long Straddle (Buy Straddle) strategies. Find the best options trading strategy for your trading needs.

Collar Vs Long Straddle (Buy Straddle)

  Collar Long Straddle (Buy Straddle)
Collar Logo Long Straddle (Buy Straddle) 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 The Long Straddle (or Buy Straddle) is a neutral strategy. This strategy involves simultaneously buying a call and a put option of the same underlying asset, same strike price and same expire date. A Long Straddle strategy is used in case of highly volatile market scenarios wherein you expect a big movement in the price of the underlying but are not sure of the direction. Such scenarios arise when company declare results, budget, war-like situation etc. This is an unlimited profit and limited risk strategy. The profit earns in this strategy is unlimited. Higher volatility results in higher profits. The maximum loss is limited to the net premium paid. The max loss occurs when underlying asset price on expire remains at the strike price. ... Read More
Market View Bullish Neutral
Strategy Level Advance Beginners
Options Type Call + Put + Underlying Call + Put
Number of Positions 3 2
Risk Profile Limited Limited
Reward Profile Limited Unlimited
Breakeven Point Price of Features - Call Premium + Put Premium 2 break-even points

When and how to use Collar and Long Straddle (Buy Straddle)?

  Collar Long Straddle (Buy Straddle)
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.

The strategy is perfect to use when there is market volatility expected due to results, elections, budget, policy change, war etc.

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

When you are not sure on the direction the underlying would move but are expecting the rise in its volatility.

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

  • Buy Call Option
  • Buy Put Option

Breakeven Point Price of Features - Call Premium + Put Premium
2 break-even points

A straddle has two break-even points.

Lower Breakeven = Strike Price of Put - Net Premium

Upper breakeven = Strike Price of Call + Net Premium

Compare Risks and Rewards (Collar Vs Long Straddle (Buy Straddle))

  Collar Long Straddle (Buy Straddle)
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

The maximum loss for long straddle strategy is limited to the net premium paid. It happens the price of underlying is equal to strike price of options.

Maximum Loss = 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

Unlimited

There is unlimited profit opportunity in this strategy irrespective of the direction of the underlying. Profit occurs when the price of the underlying is greater than strike price of long Put or lesser than strike price of long Call.

Maximum Profit Scenario

Underlying goes up and Call option exercised

Max profit is achieved when at one option is exercised.

Maximum Loss Scenario

Underlying goes down and Put option exercised

When both options are not exercised. This happens when underlying asset price on expire remains at the strike price.

Pros & Cons or Collar and Long Straddle (Buy Straddle)

  Collar Long Straddle (Buy Straddle)
Advantages

It protects the losses on underlying asset.

Earns you unlimited profit in a volatile market while minimizing the loss.

Disadvantage

The profit is limited

The price change has to be bigger to make good profits.

Simillar Strategies Covered Put Bull, Call Spread, Bull Put Spread Long Strangle, Short Straddle







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