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

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

Long Call Vs Short Straddle (Sell Straddle or Naked Straddle)

  Long Call Short Straddle (Sell Straddle or Naked Straddle)
Long Call Logo Short Straddle (Sell Straddle or Naked Straddle) Logo
About Strategy A Long Call Option trading strategy is one of the basic strategies. In this strategy, a trader is Bullish in his market view and expects the market to rise in near future. The strategy involves taking a single position of buying a Call Option (either ITM, ATM or OTM). This strategy has limited risk (max loss is premium paid) and unlimited profit potential. When the trader goes long on call, the trader buys a Call Option and later sells it to earn profits if the price of the underlying asset goes up. When the trader buys a call, he pays the option premium in exchange for the right (but not the obligation) to buy share or index at a fixed price by a certain expiry date. This premium is the only amount at-the-risk for trader in case the mark... 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 Beginners Advance
Options Type Call Call + Put
Number of Positions 1 2
Risk Profile Limited Unlimited
Reward Profile Unlimited Limited
Breakeven Point Strike Price + Premium 2 Breakeven Points

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

  Long Call Short Straddle (Sell Straddle or Naked Straddle)
When to use?

A long call Option strategy works well when you expect the underlying instrument to move positively in the recent future.

If you expect XYZ company to do well in near future then you can buy Call Options of the company. You will earn the profit if the price of the company shares closes above the Strike Price on the expiry date. However, if underlying shares don't do well and move downwards on expiry date you will incur losses (i.e. lose premium paid).

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're expecting a rise in the price of the underlying and increase in volatility.

Neutral

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

Action
  • Buy Call Option

A long call strategy involves buying a call option only. So if you expect Reliance to do well in near future then you can buy Call Options of Reliance. You will earn a profit if the price of Reliance shares closes above the Strike price on the expiry date. However, if Reliance shares don't move up within the expiry date you will incur losses.

  • Sell Call Option
  • Sell Put Option

Breakeven Point Strike Price + Premium

The break-even point for Long Call strategy is the sum of the strike price and premium paid. Traders earn profits if the price of the underlying asset moves above the break-even point. Traders loose premium if the price of the underlying asset falls below the break-even point.

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 (Long Call Vs Short Straddle (Sell Straddle or Naked Straddle))

  Long Call Short Straddle (Sell Straddle or Naked Straddle)
Risks Limited

The risk is limited to the premium paid for the call option irrespective of the price of the underlying on the expiration date.

Max Loss = Premium Paid

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 Unlimited

There is no limit to maximum profit attainable in the long call option strategy. The trade gets profitable when price of the underlying is greater than strike price plus premium.

Profit = Price of Underlying - (Strike Price + Premium Paid)

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 closes above the strike price on expiry.

Both Option not exercised

Maximum Loss Scenario

Underlying closes below the strike price on expiry.

One Option exercised

Pros & Cons or Long Call and Short Straddle (Sell Straddle or Naked Straddle)

  Long Call Short Straddle (Sell Straddle or Naked Straddle)
Advantages

Buying a Call Option instead of the underlying allows you to gain more profits by investing less and limiting your losses to minimum.

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

Disadvantage

Call options have a limited lifespan. So, in case the price of your underlying stock is not higher than the strike price before the expiry date, the call option will expire worthlessly and you will lose the premium paid.

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

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