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Covered Put (Married Put) Vs Long Call Butterfly Options Trading Strategy Comparison

Compare Covered Put (Married Put) and Long Call Butterfly options trading strategies. Find similarities and differences between Covered Put (Married Put) and Long Call Butterfly strategies. Find the best options trading strategy for your trading needs.

Covered Put (Married Put) Vs Long Call Butterfly

  Covered Put (Married Put) Long Call Butterfly
Covered Put (Married Put) Logo Long Call Butterfly Logo
About Strategy The Covered Put is a neutral to bearish market view and expects the price of the underlying to remain range bound or go down. In this strategy, while shorting shares (or futures), you also sell a Put Option (ATM or slight OTM) to cover for any unexpected rise in the price of the shares. This strategy is also known as Married Put strategy or writing covered put strategy. The risk is unlimited while the reward is limited in this strategy. How to use a Protective Call trading strategy? The usual Covered Put looks like as below for State Bank of India (SBI) Shares which are currently traded at Rs 275 (SBI Spot Price): Covered Put Orders - SBI Stock OrdersSBI Strike Price Sell Underlying SharesSell 100 SBI Shares ... 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 Bearish Neutral
Strategy Level Advance Advance
Options Type Put + Underlying Call
Number of Positions 2 4
Risk Profile Unlimited Limited
Reward Profile Limited Limited
Breakeven Point Futures Price + Premium Received

When and how to use Covered Put (Married Put) and Long Call Butterfly?

  Covered Put (Married Put) Long Call Butterfly
When to use?

The Covered Put works well when the market is moderately Bearish

This strategy should be used when you're expecting no volatility in the price of the underlying.

Market View Bearish

When you are expecting a moderate drop in the price and volatility of the underlying.

Neutral

Neutral on the underlying asset and bearish on the volatility.

Action Sell Underlying Sell OTM Put Option

Suppose SBI is trading at 300. You believe that the price will remain range bound or mildly drop. The covered put allows you to benefit from this market view. In this strategy, you sell the underlying and also sell a Put Option of the underlying and receive the premium. You will benefit from drop in prices of SBI, the Put Option will minimize your risks. If there is no change in price then you keep the premium received as profit.

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

Breakeven Point Futures Price + Premium Received

The break-even point is achieved when the price of the underlying is equal to the total of the sale price of underlying and premium received.


Upper Breakeven = Higher Strike Price - Net Premium

Lower Breakeven = Lower Strike Price + Net Premium

Compare Risks and Rewards (Covered Put (Married Put) Vs Long Call Butterfly)

  Covered Put (Married Put) Long Call Butterfly
Risks Unlimited

The Maximum Loss is Unlimited as the price of the underlying can theoretically go up to any extent.

Loss = Price of Underlying - Sale Price of Underlying - Premium Received

Limited

Risk in the Long Call Butterfly options strategy is limited to the net premium paid.

Rewards Limited

The maximum profit is limited to the premiums received. The profit happens when the price of the underlying moves above strike price of Short Put.

Limited

Rewards in the Long Call Butterfly options strategy is limited to the adjacent strikes minus net premium debit.

Maximum Profit Scenario

Underlying goes down and Options exercised

Only ITM Call exercised

Maximum Loss Scenario

Underlying goes up and Options exercised

All options exercised or all options not exercised.

Pros & Cons or Covered Put (Married Put) and Long Call Butterfly

  Covered Put (Married Put) Long Call Butterfly
Advantages

Its an income generation strategy in a neutral or Bearish market. Also allows you to benefit from fall in prices, range bound movements or mild increase.

Profit earning strategy with limited risk in a less volatile market.

Disadvantage

The risks can be huge if the prices increases steeply.

Premiums and brokerage paid on multiple position may eat your profits.

Simillar Strategies Bear Put Spread, Bear Call Spread