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Long Straddle (Buy Straddle) Vs Long Call Butterfly Options Trading Strategy Comparison

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

Long Straddle (Buy Straddle) Vs Long Call Butterfly

  Long Straddle (Buy Straddle) Long Call Butterfly
Long Straddle (Buy Straddle) Logo Long Call Butterfly Logo
About Strategy 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 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 Neutral Neutral
Strategy Level Beginners Advance
Options Type Call + Put Call
Number of Positions 2 4
Risk Profile Limited Limited
Reward Profile Unlimited Limited
Breakeven Point 2 break-even points

When and how to use Long Straddle (Buy Straddle) and Long Call Butterfly?

  Long Straddle (Buy Straddle) Long Call Butterfly
When to use?

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

This strategy should be used when you're expecting no volatility in the price of the underlying.

Market View Neutral

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

Neutral

Neutral on the underlying asset and bearish on the volatility.

Action
  • Buy Call Option
  • Buy Put Option

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

Breakeven Point 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


Upper Breakeven = Higher Strike Price - Net Premium

Lower Breakeven = Lower Strike Price + Net Premium

Compare Risks and Rewards (Long Straddle (Buy Straddle) Vs Long Call Butterfly)

  Long Straddle (Buy Straddle) Long Call Butterfly
Risks 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

Limited

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

Rewards 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.

Limited

Rewards in the Long Call Butterfly options strategy is limited to the adjacent strikes minus net premium debit.

Maximum Profit Scenario

Max profit is achieved when at one option is exercised.

Only ITM Call exercised

Maximum Loss Scenario

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

All options exercised or all options not exercised.

Pros & Cons or Long Straddle (Buy Straddle) and Long Call Butterfly

  Long Straddle (Buy Straddle) Long Call Butterfly
Advantages

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

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

Disadvantage

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

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

Simillar Strategies Long Strangle, Short Straddle
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