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Long Put Vs Covered Strangle Options Trading Strategy Comparison

Compare Long Put and Covered Strangle options trading strategies. Find similarities and differences between Long Put and Covered Strangle strategies. Find the best options trading strategy for your trading needs.

Long Put Vs Covered Strangle

  Long Put Covered Strangle
Long Put Logo Covered Strangle Logo
About Strategy A Long Put strategy is a basic strategy with the Bearish market view. Long Put is the opposite of Long Call. Here you are trying to take a position to benefit from the fall in the price of the underlying asset. The risk is limited to premium while rewards are unlimited. Long put strategy is similar to short selling a stock. This strategy has many advantages over short selling. This includes the maximum risk is the premium paid and lower investment. The challenge with this strategy is that options have an expiry, unlike stocks which you can hold as long as you want. Let's assume you are bearish on NIFTY and expects its price to fall. You can deploy a Long Put strategy by buying an ATM PUT Option of NIFTY. If the price of NIFTY share... Read More The covered strangle option strategy is a bullish strategy. The strategy is created by owning or buying a stock and selling an OTM Call and OTM Put. It is called covered strangle because the upside risk of the strangle is covered or minimized. The strategy is perfect to use when you are prepared to sell the holding or bought shares at a higher price if the market moves up but would also is ready to buy more shares if the market moves downwards. The profit and in this strategy is unlimited while the risk is only on the downside.
Market View Bearish Bullish
Strategy Level Beginners Advance
Options Type Put Call + Put + Underlying
Number of Positions 1 3
Risk Profile Limited Limited
Reward Profile Unlimited Limited
Breakeven Point Strike Price of Long Put - Premium Paid two break-even points

When and how to use Long Put and Covered Strangle?

  Long Put Covered Strangle
When to use?

A long put option strategy works well when you're expecting the underlying asset to sharply decline or be volatile in near future.

A covered strangle strategy can be used when you are bullish on the market but also want to cover any downside risk. You are prepared to sell the shares on profit but are also willing to buy more shares in case the prices fall.

Market View Bearish

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

Bullish

The Strategy is perfect to apply when you're bullish on the market and expecting less volatility in the market.

Action
  • Buy Put Option

Let's assume you're Bearish on Nifty currently trading at 10,400. You expect it to fall to 10,000 level. You buy a Put option with a strike price 10,000. If the Nifty goes below 10,000, you will make a profit on exercising the option. In case the Nifty rises contrary to expectation, you will incur a maximum loss of the premium.

Buy 100 shares + Sell OTM Call +Sell OTM Put

The covered strangle options strategy can be executed by buying 100 shares of a stock while simultaneously selling an OTM Put and Call of the same the stock and similar expiration date.

Breakeven Point Strike Price of Long Put - Premium Paid

The breakeven is achieved when the strike price of the Put Option is equal to the premium paid.

two break-even points

There are 2 break-even points in the covered strangle strategy. One is the Upper break even point which is the sum of strike price of the Call option and premium received while the other is the lower break-even point which is the difference strike price of short Put and premium received.

Compare Risks and Rewards (Long Put Vs Covered Strangle)

  Long Put Covered Strangle
Risks Limited

The risk for this strategy is limited to the premium paid for the Put Option. Maximum loss will happen when price of underlying is greater than strike price of the Put option.

Limited

The risk on this strategy is only on the downside when the price moves below the strike price of the Put option.

Rewards Unlimited

This strategy has the potential to earn unlimited profit. The profit will depend on how low the price of the underlying drops.

Limited

The maximum profit on this strategy happens when the stock price is above the call price on expiry. The profit is the total of the gain from buying/selling stocks and net premium received on selling options.

Maximum Profit Scenario

Underlying goes down and Option exercised

  • Maximum Profit = Unlimited
  • Maximum Profit Achieved When Price of Underlying = 0
  • Profit = Strike Price of Long Put - Premium Paid

You will earn the maximum profit when the price of the stock is above the Call option strike price on expiry. You will be assigned on the Call option, would be able to sell holding shares on profit while retaining the premiums received while selling the options.

Maximum Loss Scenario

Underlying goes up and Option not exercised

  • Max Loss = Premium Paid + Commissions Paid
  • Max Loss Occurs When Price of Underlying >= Strike Price of Long Put

The maximum loss would be when the stock price falls drastically and turns worthless. The premiums received while selling the options will compensate for some of the loss.

Pros & Cons or Long Put and Covered Strangle

  Long Put Covered Strangle
Advantages

Unlimited profit potential with risk only limited to loss of premium.

  • As the strategy involves buying shares when prices fall, there is long-term gain even if their short-term loss.
  • There is no upside risk due to the long position in stocks.
  • Allows you to earn income in a moderately bullish market.
Disadvantage

You may incur 100% loss in premium if the underlying price rises.

  • The substantial risk when the price moves downwards.
  • Risk of assignments.
Simillar Strategies Protective Call, Short Put, Long Straddle Long Strangle, Short Strangle