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

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

Long Strangle (Buy Strangle) Vs Long Call Butterfly

  Long Strangle (Buy Strangle) Long Call Butterfly
Long Strangle (Buy Strangle) Logo Long Call Butterfly Logo
About Strategy The Long Strangle (or Buy Strangle or Option Strangle) is a neutral strategy wherein Slightly OTM Put Options and Slightly OTM Call are bought simultaneously with same underlying asset and expiry date. This strategy can be used when the trader expects that the underlying stock will experience significant volatility in the near term. It is a limited risk and unlimited reward strategy. The maximum loss is the net premium paid while maximum profit is achieved when the underlying moves either significantly upwards or downwards at expiration. The usual Long Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY Spot Price): Options Strangle Orders OrdersNIFTY Strike Price Buy 1 Slightly OTM PutN... 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 two break-even points

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

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

A Long Strangle 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.

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

Market View Neutral

When you are unsure of the direction of the underlying but expecting high volatility in it.

Neutral

Neutral on the underlying asset and bearish on the volatility.

Action
  • Buy OTM Call Option
  • Buy OTM Put Option

Suppose Nifty is currently at 10400 and you expect the price to move sharply but are unsure about the direction. In such a scenario, you can execute long strangle strategy by buying Nifty at 10600 and at 10800. The net premium paid will be your maximum loss while the profit will depend on how high or low the index moves.

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

Breakeven Point two break-even points

A Options Strangle strategy has two break-even points.

Lower Breakeven Point = Strike Price of Put - Net Premium

Upper Breakeven Point = 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 Strangle (Buy Strangle) Vs Long Call Butterfly)

  Long Strangle (Buy Strangle) Long Call Butterfly
Risks Limited

Max Loss = Net Premium Paid

The maximum loss is limited to the net premium paid in the long strangle strategy. It occurs when the price of the underlying is trading between the strike price of Options.

Limited

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

Rewards Unlimited

Maximum profit is achieved when the underlying moves significantly up and down at expiration.

Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid

Or

Profit = Strike Price of Long Put - Price of Underlying - Net Premium Paid

Limited

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

Maximum Profit Scenario

One Option exercised

Only ITM Call exercised

Maximum Loss Scenario

Both Option not exercised

All options exercised or all options not exercised.

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

  Long Strangle (Buy Strangle) Long Call Butterfly
Advantages

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

Disadvantage

The strategy requires significant price movements in the underlying to gain profits.

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

Simillar Strategies Long Straddle, Short Strangle
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