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Short Call (Naked Call) Vs Short Straddle (Sell Straddle or Naked Straddle) Options Trading Strategy Comparison

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

Short Call (Naked Call) Vs Short Straddle (Sell Straddle or Naked Straddle)

  Short Call (Naked Call) Short Straddle (Sell Straddle or Naked Straddle)
Short Call (Naked Call) Logo Short Straddle (Sell Straddle or Naked 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 Short Straddle (or Sell Straddle or naked Straddle) is a neutral options strategy. This strategy involves simultaneously selling a call and a put option of the same underlying asset, same strike price and same expire date. A Short Straddle strategy is used in case of little volatility market scenarios wherein you expect none or very little movement in the price of the underlying. Such scenarios arise when there is no major news expected until expire. This is a limited profit and unlimited loss strategy. The maximum profit earned when, on expire date, the underlying asset is trading at the strike price at which the options are sold. The maximum loss is unlimited and occurs when underlying asset price moves sharply in upward or down... Read More
Market View Bearish Neutral
Strategy Level Advance Advance
Options Type Call Call + Put
Number of Positions 1 2
Risk Profile Unlimited Unlimited
Reward Profile Limited Limited
Breakeven Point Strike Price of Short Call + Premium Received 2 Breakeven Points

When and how to use Short Call (Naked Call) and Short Straddle (Sell Straddle or Naked Straddle)?

  Short Call (Naked Call) Short Straddle (Sell Straddle or Naked 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.

This strategy is to be used when you expect a flat market in the coming days with very less movement in the prices of underlying asset.

Market View Bearish

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

Neutral

When trader don't expect much movement in its price in near future.

Action
  • Sell Call Option

  • Sell Call Option
  • Sell 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 Breakeven Points

There are 2 break even points in this strategy. The upper break even is hit when the underlying price is equal to the total of strike price of short call and net premium paid. The lower break even is hit when the underlying price is equal to the difference between strike price of short Put and net premium paid.

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 Short Straddle (Sell Straddle or Naked Straddle))

  Short Call (Naked Call) Short Straddle (Sell Straddle or Naked Straddle)
Risks Unlimited

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

Unlimited

There is a possibility of unlimited loss in the short straddle strategy. The loss occurs when the price of the underlying significantly moves upwards and downwards.

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 Limited

The profit is limited to the premium received.

Limited

Maximum profit is limited to the net premium received. The profit is achieved when the price of the underlying is equal to either strike price of short Call or Put.

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
Both Option not 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

One Option exercised

Pros & Cons or Short Call (Naked Call) and Short Straddle (Sell Straddle or Naked Straddle)

  Short Call (Naked Call) Short Straddle (Sell Straddle or Naked Straddle)
Advantages

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

It allows you to benefit from double time decay and earn profit in a less volatile scenario.

Disadvantage

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

Rewards are limited to premium received only.

Unlimited losses if the price of the underlying move significantly in either direction.

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







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