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Covered Put (Married Put) Vs Short Straddle (Sell Straddle or Naked Straddle) Options Trading Strategy Comparison

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

Covered Put (Married Put) Vs Short Straddle (Sell Straddle or Naked Straddle)

  Covered Put (Married Put) Short Straddle (Sell Straddle or Naked Straddle)
Covered Put (Married Put) Logo Short Straddle (Sell Straddle or Naked Straddle) 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 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 Bearish Neutral
Strategy Level Advance Advance
Options Type Put + Underlying Call + Put
Number of Positions 2 2
Risk Profile Unlimited Unlimited
Reward Profile Limited Limited
Breakeven Point Futures Price + Premium Received 2 Breakeven Points

When and how to use Covered Put (Married Put) and Short Straddle (Sell Straddle or Naked Straddle)?

  Covered Put (Married Put) Short Straddle (Sell Straddle or Naked Straddle)
When to use?

The Covered Put works well when the market is moderately Bearish

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 Bearish

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

Neutral

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

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 Call Option
  • Sell Put Option

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.

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 (Covered Put (Married Put) Vs Short Straddle (Sell Straddle or Naked Straddle))

  Covered Put (Married Put) Short Straddle (Sell Straddle or Naked Straddle)
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

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

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

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 down and Options exercised

Both Option not exercised

Maximum Loss Scenario

Underlying goes up and Options exercised

One Option exercised

Pros & Cons or Covered Put (Married Put) and Short Straddle (Sell Straddle or Naked Straddle)

  Covered Put (Married Put) Short Straddle (Sell Straddle or Naked Straddle)
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.

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

Disadvantage

The risks can be huge if the prices increases steeply.

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

Simillar Strategies Bear Put Spread, Bear Call Spread Short Strangle, Long Straddle







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