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Long Straddle (Buy Straddle) Vs Short Strangle (Sell Strangle) Options Trading Strategy Comparison

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

Long Straddle (Buy Straddle) Vs Short Strangle (Sell Strangle)

  Long Straddle (Buy Straddle) Short Strangle (Sell Strangle)
Long Straddle (Buy Straddle) Logo Short Strangle (Sell Strangle) 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 The Short Strangle (or Sell Strangle) is a neutral strategy wherein a Slightly OTM Call and a Slightly OTM Put Options are sold simultaneously of same underlying asset and expiry date. This strategy can be used when the trader expects that the underlying stock will experience a very little volatility in the near term. It is a limited profit and unlimited risk strategy. The maximum profit earn is the net premium received. The maximum loss is achieved when the underlying moves either significantly upwards or downwards at expiration. A net credit is taken to enter into this strategy. For this reason, the Short Strangles are Credit Spreads. The usual Short Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY S... Read More
Market View Neutral Neutral
Strategy Level Beginners Advance
Options Type Call + Put Call + Put
Number of Positions 2 2
Risk Profile Limited Unlimited
Reward Profile Unlimited Limited
Breakeven Point 2 break-even points two break-even points

When and how to use Long Straddle (Buy Straddle) and Short Strangle (Sell Strangle)?

  Long Straddle (Buy Straddle) Short Strangle (Sell Strangle)
When to use?

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

The Short Strangle is perfect in a neutral market scenario when the underlying is expected to be less volatile.

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 expecting little volatility and movement in the price of the underlying.

Action
  • Buy Call Option
  • Buy Put Option

  • Sell OTM Call
  • Sell OTM Put

Sell 1 out-of-the-money put and sell 1 out-of-the-money call which belongs to same underlying asset and has the same expiry date.

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

two break-even points

A strangle has two break-even points.

Lower Break-even = Strike Price of Put - Net Premium

Upper Break-even = Strike Price of Call+ Net Premium"

Compare Risks and Rewards (Long Straddle (Buy Straddle) Vs Short Strangle (Sell Strangle))

  Long Straddle (Buy Straddle) Short Strangle (Sell Strangle)
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

Unlimited

The maximum loss is unlimited in this strategy. You will incur losses when the price of the underlying moves significantly either upwards or downwards at expiration.

Loss = Price of Underlying - Strike Price of Short Call - Net Premium Received

Or

Loss = Strike Price of Short Put - Price of Underlying - Net Premium Received

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

For maximum profit, the price of the underlying on expiration date must trade between the strike prices of the options. The maximum profit is limited to the net premium received while selling the Options.

Maximum Profit = Net Premium Received

Maximum Profit Scenario

Max profit is achieved when at one option is exercised.

Both Option not exercised

Maximum Loss Scenario

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

One Option exercised

Pros & Cons or Long Straddle (Buy Straddle) and Short Strangle (Sell Strangle)

  Long Straddle (Buy Straddle) Short Strangle (Sell Strangle)
Advantages

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

The strategy offers higher chance of profitability in comparison to Short Straddle due to selling of OTM Options.

Disadvantage

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

Limited reward with high risk exposure.

Simillar Strategies Long Strangle, Short Straddle Short Straddle, Long Strangle