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

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

Collar Vs Long Strangle (Buy Strangle)

  Collar Long Strangle (Buy Strangle)
Collar Logo Long Strangle (Buy Strangle) 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 Strangle (or Buy Strangle or Option Strangle) is a neutral strategy wherein Slightly OTM Put Options and Slightly OTM Call are bought simultaneously with same underlying asset and expiry date. This strategy can be used when the trader expects that the underlying stock will experience significant volatility in the near term. It is a limited risk and unlimited reward strategy. The maximum loss is the net premium paid while maximum profit is achieved when the underlying moves either significantly upwards or downwards at expiration. The usual Long Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY Spot Price): Options Strangle Orders OrdersNIFTY Strike Price Buy 1 Slightly OTM PutN... 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 two break-even points

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

  Collar Long Strangle (Buy Strangle)
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.

A Long Strangle is meant for special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements 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 unsure of the direction of the underlying but expecting high volatility in it.

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

  • Buy OTM Call Option
  • Buy OTM Put Option

Suppose Nifty is currently at 10400 and you expect the price to move sharply but are unsure about the direction. In such a scenario, you can execute long strangle strategy by buying Nifty at 10600 and at 10800. The net premium paid will be your maximum loss while the profit will depend on how high or low the index moves.

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

A Options Strangle strategy has two break-even points.

Lower Breakeven Point = Strike Price of Put - Net Premium

Upper Breakeven Point = Strike Price of Call + Net Premium

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

  Collar Long Strangle (Buy Strangle)
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

Max Loss = Net Premium Paid

The maximum loss is limited to the net premium paid in the long strangle strategy. It occurs when the price of the underlying is trading between the strike price of Options.

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

Maximum profit is achieved when the underlying moves significantly up and down at expiration.

Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid

Or

Profit = Strike Price of Long Put - Price of Underlying - Net Premium Paid

Maximum Profit Scenario

Underlying goes up and Call option exercised

One Option exercised

Maximum Loss Scenario

Underlying goes down and Put option exercised

Both Option not exercised

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

  Collar Long Strangle (Buy Strangle)
Advantages

It protects the losses on underlying asset.

Disadvantage

The profit is limited

The strategy requires significant price movements in the underlying to gain profits.

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