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Short Call (Naked Call) Vs Long Call Butterfly Options Trading Strategy Comparison

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

Short Call (Naked Call) Vs Long Call Butterfly

  Short Call (Naked Call) Long Call Butterfly
Short Call (Naked Call) Logo Long Call Butterfly Logo
About Strategy Short Call (or Naked Call) strategy involves the selling of the Call Options (or writing call option). In this strategy, a trader is Very Bearish in his market view and expects the price of the underlying asset to go down in near future. This strategy is highly risky with potential for unlimited losses and is generally preferred by experienced traders. The strategy involves taking a single position of selling a Call Option of any type i.e. ITM or OTM. These naked calls are also known as Out-Of-The-Money Naked Call and In-The-Money Naked Call based on the type you choose. This strategy has limited rewards (max profit is premium received) and unlimited loss potential. When the trader goes short on call, the trader sells a call option and e... 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 Bearish Neutral
Strategy Level Advance Advance
Options Type Call Call
Number of Positions 1 4
Risk Profile Unlimited Limited
Reward Profile Limited Limited
Breakeven Point Strike Price of Short Call + Premium Received

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

  Short Call (Naked Call) Long Call Butterfly
When to use?

It is an aggressive strategy and involves huge risks. It should be used only in case where trader is certain about the bearish market view on the underlying.

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

Market View Bearish

When you are expecting the price of the underlying or its volatility to only moderately increase.

Neutral

Neutral on the underlying asset and bearish on the volatility.

Action
  • Sell Call Option

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

Breakeven Point Strike Price of Short Call + Premium Received

Break even is achieved when the price of the underlying is equal to total of strike price and premium received.


Upper Breakeven = Higher Strike Price - Net Premium

Lower Breakeven = Lower Strike Price + Net Premium

Compare Risks and Rewards (Short Call (Naked Call) Vs Long Call Butterfly)

  Short Call (Naked Call) Long Call Butterfly
Risks Unlimited

There risk is unlimited and depend on how high the price of the underlying moves.

Limited

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

Rewards Limited

The profit is limited to the premium received.

Limited

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

Maximum Profit Scenario

When underline asset goes down and option not exercised.

  • Max Profit = Premium Received
  • Max Profit Achieved When Price of Underlying <= Strike Price of Short Call

Only ITM Call exercised

Maximum Loss Scenario

When underline asset goes up and option exercised.

  • Maximum Loss = Unlimited
  • Loss Occurs When Price of Underlying > Strike Price of Short Call + Premium Received
  • Loss = Price of Underlying - Strike Price of Short Call - Premium Received

All options exercised or all options not exercised.

Pros & Cons or Short Call (Naked Call) and Long Call Butterfly

  Short Call (Naked Call) Long Call Butterfly
Advantages

This strategy allows you to profit from falling prices in the underlying asset.

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

Disadvantage

There's unlimited risk on the upside as you are selling Option without holding the underlying.

Rewards are limited to premium received only.

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

Simillar Strategies Covered Put, Covered Calls, Bear Call Spread