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Collar Vs Short Straddle (Sell Straddle or Naked Straddle) Options Trading Strategy Comparison

Compare Collar and Short Straddle (Sell Straddle or Naked Straddle) options trading strategies. Find similarities and differences between Collar and Short Straddle (Sell Straddle or Naked Straddle) strategies. Find the best options trading strategy for your trading needs.

Collar Vs Short Straddle (Sell Straddle or Naked Straddle)

  Collar Short Straddle (Sell Straddle or Naked Straddle)
Collar Logo Short Straddle (Sell Straddle or Naked 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 Short Straddle (or Sell Straddle or naked Straddle) is a neutral options strategy. This strategy involves simultaneously selling a call and a put option of the same underlying asset, same strike price and same expire date. A Short Straddle strategy is used in case of little volatility market scenarios wherein you expect none or very little movement in the price of the underlying. Such scenarios arise when there is no major news expected until expire. This is a limited profit and unlimited loss strategy. The maximum profit earned when, on expire date, the underlying asset is trading at the strike price at which the options are sold. The maximum loss is unlimited and occurs when underlying asset price moves sharply in upward or down... Read More
Market View Bullish Neutral
Strategy Level Advance Advance
Options Type Call + Put + Underlying Call + Put
Number of Positions 3 2
Risk Profile Limited Unlimited
Reward Profile Limited Limited
Breakeven Point Price of Features - Call Premium + Put Premium 2 Breakeven Points

When and how to use Collar and Short Straddle (Sell Straddle or Naked Straddle)?

  Collar Short Straddle (Sell Straddle or Naked 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.

This strategy is to be used when you expect a flat market in the coming days with very less movement in the prices of underlying asset.

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 trader don't expect much movement in its price in near future.

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

  • Sell Call Option
  • Sell Put Option

Breakeven Point Price of Features - Call Premium + Put Premium
2 Breakeven Points

There are 2 break even points in this strategy. The upper break even is hit when the underlying price is equal to the total of strike price of short call and net premium paid. The lower break even is hit when the underlying price is equal to the difference between strike price of short Put and net premium paid.

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 Short Straddle (Sell Straddle or Naked Straddle))

  Collar Short Straddle (Sell Straddle or Naked 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

Unlimited

There is a possibility of unlimited loss in the short straddle strategy. The loss occurs when the price of the underlying significantly moves upwards and downwards.

Loss = Price of Underlying - Strike Price of Short Call - Net Premium Received

Or

Loss= Strike Price of Short Put - Price of Underlying - Net Premium Received

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

Maximum profit is limited to the net premium received. The profit is achieved when the price of the underlying is equal to either strike price of short Call or Put.

Maximum Profit Scenario

Underlying goes up and Call option exercised

Both Option not exercised

Maximum Loss Scenario

Underlying goes down and Put option exercised

One Option exercised

Pros & Cons or Collar and Short Straddle (Sell Straddle or Naked Straddle)

  Collar Short Straddle (Sell Straddle or Naked Straddle)
Advantages

It protects the losses on underlying asset.

It allows you to benefit from double time decay and earn profit in a less volatile scenario.

Disadvantage

The profit is limited

Unlimited losses if the price of the underlying move significantly in either direction.

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