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

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

Long Straddle (Buy Straddle) Vs Short Call Butterfly

  Long Straddle (Buy Straddle) Short Call Butterfly
Long Straddle (Buy Straddle) Logo Short 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 Short Call Butterfly (or Short Butterfly) is a neutral strategy similar to Long Butterfly but bullish on the volatility. This strategy is a limited risk and limited profit strategy. This strategy consists of two long calls at a middle strike (or ATM) and one short call each at a lower and upper strike. All the options must have the same expiration date. Also, the upper and lower strikes (or wings) must both be equidistant from the middle strike (or body). In simple terms, it involves Sell 1 ITM Call, Buy 2 ATM Calls and Sell 1 OTM Call. The strike prices of all Options should be at equal distance from the current price as shown in the example below. The usual Short Butterfly strategy looks like as below for NIFTY current index value as 1... 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 2 Break-even Points

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

  Long Straddle (Buy Straddle) Short 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 is meant for special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.

Market View Neutral

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

Neutral

When you are unsure about the direction in the movement in the price of the underlying but are expecting high volatility in it in the near future.

Action
  • Buy Call Option
  • Buy Put Option

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

2 Break-even Points

There are 2 break even points in this strategy.

  1. Lower Break-even = Lower Strike Price + Net Premium
  2. Upper Break-even = Higher Strike Price - Net Premium

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

  Long Straddle (Buy Straddle) Short 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

The maximum risk is limited.

Maximum Risk = Higher strike price- Lower Strike Price - Net Premium

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

The profit is limited to the net premium received. This happens when the price of the underlying is trading beyond the range of strike prices at expiration date.

Maximum Profit Scenario

Max profit is achieved when at one option is exercised.

All Options exercised or not exercised

Maximum Loss Scenario

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

Only ITM Call exercised

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

  Long Straddle (Buy Straddle) Short Call Butterfly
Advantages

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

This strategy requires no investment as net premium is positive and received. It allows you to benefit from high volatile market scenarios without the need to speculate on the direction of price movement.

Disadvantage

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

Profitability depends on significant movement in the price of the underlying.

Simillar Strategies Long Strangle, Short Straddle Long Straddle, Long Call Butterfly
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