Chittorgarh.com Logo
Loading...
Compare Strategies:

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

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

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

  Short Put Short Straddle (Sell Straddle or Naked Straddle)
Short Put Logo Short Straddle (Sell Straddle or Naked Straddle) 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. 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 Bullish Neutral
Strategy Level Beginners Advance
Options Type Put Call + Put
Number of Positions 1 2
Risk Profile Unlimited Unlimited
Reward Profile Limited Limited
Breakeven Point Strike Price - Premium 2 Breakeven Points

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

  Short Put Short Straddle (Sell Straddle or Naked Straddle)
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 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 Bullish

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

Neutral

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

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 Call Option
  • Sell Put Option

Breakeven Point Strike Price - Premium
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 Put Vs Short Straddle (Sell Straddle or Naked Straddle))

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

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 premium received in your account when you sell the Put Option.

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

Underlying doesn't go down and options remain exercised.

Both Option not exercised

Maximum Loss Scenario

Underlying goes down and options remain exercised.

One Option exercised

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

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

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

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

Disadvantage

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

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

Simillar Strategies

Bull Put Spread, Covered Call, Short Straddle

Short Strangle, Long Straddle