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Long Put Vs Long Call Butterfly Options Trading Strategy Comparison

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

Long Put Vs Long Call Butterfly

  Long Put Long Call Butterfly
Long Put Logo Long Call Butterfly 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 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 Beginners Advance
Options Type Put Call
Number of Positions 1 4
Risk Profile Limited Limited
Reward Profile Unlimited Limited
Breakeven Point Strike Price of Long Put - Premium Paid

When and how to use Long Put and Long Call Butterfly?

  Long Put Long Call Butterfly
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.

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 drop in the price of the underlying and rise in the volatility.

Neutral

Neutral on the underlying asset and bearish on the volatility.

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.

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

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.


Upper Breakeven = Higher Strike Price - Net Premium

Lower Breakeven = Lower Strike Price + Net Premium

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

  Long Put Long Call Butterfly
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

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

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

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 Option exercised

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

Only ITM Call exercised

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

All options exercised or all options not exercised.

Pros & Cons or Long Put and Long Call Butterfly

  Long Put Long Call Butterfly
Advantages

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

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

Disadvantage

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

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

Simillar Strategies Protective Call, Short Put, Long Straddle