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

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

Short Call (Naked Call) Vs Long Put

  Short Call (Naked Call) Long Put
Short Call (Naked Call) Logo Long Put 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 A Long Put strategy is a basic strategy with the Bearish market view. Long Put is the opposite of Long Call. Here you are trying to take a position to benefit from the fall in the price of the underlying asset. The risk is limited to premium while rewards are unlimited. Long put strategy is similar to short selling a stock. This strategy has many advantages over short selling. This includes the maximum risk is the premium paid and lower investment. The challenge with this strategy is that options have an expiry, unlike stocks which you can hold as long as you want. Let's assume you are bearish on NIFTY and expects its price to fall. You can deploy a Long Put strategy by buying an ATM PUT Option of NIFTY. If the price of NIFTY share... Read More
Market View Bearish Bearish
Strategy Level Advance Beginners
Options Type Call Put
Number of Positions 1 1
Risk Profile Unlimited Limited
Reward Profile Limited Unlimited
Breakeven Point Strike Price of Short Call + Premium Received Strike Price of Long Put - Premium Paid

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

  Short Call (Naked Call) Long Put
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.

A long put option strategy works well when you're expecting the underlying asset to sharply decline or be volatile in near future.

Market View Bearish

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

Bearish

When you are expecting a drop in the price of the underlying and rise in the volatility.

Action
  • Sell Call Option

  • Buy Put Option

Let's assume you're Bearish on Nifty currently trading at 10,400. You expect it to fall to 10,000 level. You buy a Put option with a strike price 10,000. If the Nifty goes below 10,000, you will make a profit on exercising the option. In case the Nifty rises contrary to expectation, you will incur a maximum loss of the premium.

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.

Strike Price of Long Put - Premium Paid

The breakeven is achieved when the strike price of the Put Option is equal to the premium paid.

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

  Short Call (Naked Call) Long Put
Risks Unlimited

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

Limited

The risk for this strategy is limited to the premium paid for the Put Option. Maximum loss will happen when price of underlying is greater than strike price of the Put option.

Rewards Limited

The profit is limited to the premium received.

Unlimited

This strategy has the potential to earn unlimited profit. The profit will depend on how low the price of the underlying drops.

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

Underlying goes down and Option exercised

  • Maximum Profit = Unlimited
  • Maximum Profit Achieved When Price of Underlying = 0
  • Profit = Strike Price of Long Put - Premium Paid
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

Underlying goes up and Option not exercised

  • Max Loss = Premium Paid + Commissions Paid
  • Max Loss Occurs When Price of Underlying >= Strike Price of Long Put

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

  Short Call (Naked Call) Long Put
Advantages

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

Unlimited profit potential with risk only limited to loss of premium.

Disadvantage

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

Rewards are limited to premium received only.

You may incur 100% loss in premium if the underlying price rises.

Simillar Strategies Covered Put, Covered Calls, Bear Call Spread Protective Call, Short Put, Long Straddle







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