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

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

Short Call (Naked Call) Vs Long Straddle (Buy Straddle)

  Short Call (Naked Call) Long Straddle (Buy Straddle)
Short Call (Naked Call) Logo Long Straddle (Buy Straddle) 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 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
Market View Bearish Neutral
Strategy Level Advance Beginners
Options Type Call Call + Put
Number of Positions 1 2
Risk Profile Unlimited Limited
Reward Profile Limited Unlimited
Breakeven Point Strike Price of Short Call + Premium Received 2 break-even points

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

  Short Call (Naked Call) Long Straddle (Buy Straddle)
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.

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

Market View Bearish

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

Neutral

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

Action
  • Sell Call Option

  • Buy Call Option
  • Buy Put Option

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.

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

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

  Short Call (Naked Call) Long Straddle (Buy Straddle)
Risks Unlimited

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

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

Rewards Limited

The profit is limited to the premium received.

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.

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

Max profit is achieved when at one option is 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

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

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

  Short Call (Naked Call) Long Straddle (Buy Straddle)
Advantages

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

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

Disadvantage

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

Rewards are limited to premium received only.

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

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