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Short Put Vs Long Call Butterfly Options Trading Strategy Comparison

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

Short Put Vs Long Call Butterfly

  Short Put Long Call Butterfly
Short Put Logo Long Call Butterfly Logo
About Strategy A short put is another Bullish trading strategy wherein your view is that the price of an underlying will not move below a certain level. The strategy involves entering into a single position of selling a Put Option. It has low profit potential and is exposed to unlimited risk. A short put strategy involves selling a Put Option only. For example if you see that the shares of a Company A will not move below Rs 1000 then you sell the Put Option of that stock at Rs 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this trade. However, if the price of the underlying moves below 1000 then you will incur unlimited losses. 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 Bullish Neutral
Strategy Level Beginners Advance
Options Type Put Call
Number of Positions 1 4
Risk Profile Unlimited Limited
Reward Profile Limited Limited
Breakeven Point Strike Price - Premium

When and how to use Short Put and Long Call Butterfly?

  Short Put Long Call Butterfly
When to use?

Short Put works well when you're Bullish that the price of the underlying will not fall beyond a certain level.

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

Market View Bullish

When you are expecting the price or volatility of the underlying to increase marginally.

Neutral

Neutral on the underlying asset and bearish on the volatility.

Action
  • Sell Put Option

A short put strategy involves selling a Put Option only. So if you see that the shares of a Company A will not move below a 1000 then you sell the Put Option of that stock at 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this deal. However, if the price of the underlying moves below 1000 than you will incur losses.

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

Breakeven Point Strike Price - Premium

Upper Breakeven = Higher Strike Price - Net Premium

Lower Breakeven = Lower Strike Price + Net Premium

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

  Short Put Long Call Butterfly
Risks Unlimited

There is no limit to losses incurred in the trade. The risk is when the price of the underlying falls, and the Put is exercised. You are then obliged to buy the underlying at the strike price.

Limited

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

Rewards Limited

The profit is limited to premium received in your account when you sell the Put Option.

Limited

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

Maximum Profit Scenario

Underlying doesn't go down and options remain exercised.

Only ITM Call exercised

Maximum Loss Scenario

Underlying goes down and options remain exercised.

All options exercised or all options not exercised.

Pros & Cons or Short Put and Long Call Butterfly

  Short Put Long Call Butterfly
Advantages

It allows you benefit from time decay. And earn income in a rising or range bound market scenario.

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

Disadvantage

It is a high risk strategy and may cause huge losses if the price of the underlying falls steeply.

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

Simillar Strategies

Bull Put Spread, Covered Call, Short Straddle