Compare Strategies:

Long Put Vs Long Straddle (Buy Straddle) Options Trading Strategy Comparison

Compare Long Put and Long Straddle (Buy Straddle) options trading strategies. Find similarities and differences between Long Put and Long Straddle (Buy Straddle) strategies. Find the best options trading strategy for your trading needs.

Long Put Vs Long Straddle (Buy Straddle)

  Long Put Long Straddle (Buy Straddle)
Long Put Logo Long Straddle (Buy Straddle) 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 Long Straddle (or Buy Straddle) is a neutral strategy. This strategy involves simultaneously buying a call and a put option of the same underlying asset, same strike price and same expire date. A Long Straddle strategy is used in case of highly volatile market scenarios wherein you expect a big movement in the price of the underlying but are not sure of the direction. Such scenarios arise when company declare results, budget, war-like situation etc. This is an unlimited profit and limited risk strategy. The profit earns in this strategy is unlimited. Higher volatility results in higher profits. The maximum loss is limited to the net premium paid. The max loss occurs when underlying asset price on expire remains at the strike price. ... Read More
Market View Bearish Neutral
Strategy Level Beginners Beginners
Options Type Put Call + Put
Number of Positions 1 2
Risk Profile Limited Limited
Reward Profile Unlimited Unlimited
Breakeven Point Strike Price of Long Put - Premium Paid 2 break-even points

When and how to use Long Put and Long Straddle (Buy Straddle)?

  Long Put Long Straddle (Buy Straddle)
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.

The strategy is perfect to use when there is market volatility expected due to results, elections, budget, policy change, war etc.

Market View Bearish

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

Neutral

When you are not sure on the direction the underlying would move but are expecting the rise in its 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.

  • Buy Call Option
  • Buy Put Option

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.

2 break-even points

A straddle has two break-even points.

Lower Breakeven = Strike Price of Put - Net Premium

Upper breakeven = Strike Price of Call + Net Premium

Compare Risks and Rewards (Long Put Vs Long Straddle (Buy Straddle))

  Long Put Long Straddle (Buy Straddle)
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 maximum loss for long straddle strategy is limited to the net premium paid. It happens the price of underlying is equal to strike price of options.

Maximum Loss = 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.

Unlimited

There is unlimited profit opportunity in this strategy irrespective of the direction of the underlying. Profit occurs when the price of the underlying is greater than strike price of long Put or lesser than strike price of long Call.

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

Max profit is achieved when at one option is 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

When both options are not exercised. This happens when underlying asset price on expire remains at the strike price.

Pros & Cons or Long Put and Long Straddle (Buy Straddle)

  Long Put Long Straddle (Buy Straddle)
Advantages

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

Earns you unlimited profit in a volatile market while minimizing the loss.

Disadvantage

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

The price change has to be bigger to make good profits.

Simillar Strategies Protective Call, Short Put, Long Straddle Long Strangle, Short Straddle







Search Chittorgarh.com:

Download Our Mobile App

Android App iOS App