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

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

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

  Short Straddle (Sell Straddle or Naked Straddle) Long Call Butterfly
Short Straddle (Sell Straddle or Naked Straddle) Logo Long Call Butterfly Logo
About Strategy 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 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 Neutral Neutral
Strategy Level Advance Advance
Options Type Call + Put Call
Number of Positions 2 4
Risk Profile Unlimited Limited
Reward Profile Limited Limited
Breakeven Point 2 Breakeven Points

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

  Short Straddle (Sell Straddle or Naked Straddle) Long Call Butterfly
When to use?

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.

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

Market View Neutral

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

Neutral

Neutral on the underlying asset and bearish on the volatility.

Action
  • Sell Call Option
  • Sell Put Option

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

Breakeven Point 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


Upper Breakeven = Higher Strike Price - Net Premium

Lower Breakeven = Lower Strike Price + Net Premium

Compare Risks and Rewards (Short Straddle (Sell Straddle or Naked Straddle) Vs Long Call Butterfly)

  Short Straddle (Sell Straddle or Naked Straddle) Long Call Butterfly
Risks 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

Limited

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

Rewards 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.

Limited

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

Maximum Profit Scenario Both Option not exercised

Only ITM Call exercised

Maximum Loss Scenario

One Option exercised

All options exercised or all options not exercised.

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

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

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

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

Disadvantage

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

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

Simillar Strategies Short Strangle, Long Straddle
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