Chittorgarh.com Logo
Loading...
Compare Strategies:

Short Straddle (Sell Straddle or Naked Straddle) Vs Long Strangle (Buy Strangle) Options Trading Strategy Comparison

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

Short Straddle (Sell Straddle or Naked Straddle) Vs Long Strangle (Buy Strangle)

  Short Straddle (Sell Straddle or Naked Straddle) Long Strangle (Buy Strangle)
Short Straddle (Sell Straddle or Naked Straddle) Logo Long Strangle (Buy Strangle) 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 The Long Strangle (or Buy Strangle or Option Strangle) is a neutral strategy wherein Slightly OTM Put Options and Slightly OTM Call are bought simultaneously with same underlying asset and expiry date. This strategy can be used when the trader expects that the underlying stock will experience significant volatility in the near term. It is a limited risk and unlimited reward strategy. The maximum loss is the net premium paid while maximum profit is achieved when the underlying moves either significantly upwards or downwards at expiration. The usual Long Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY Spot Price): Options Strangle Orders OrdersNIFTY Strike Price Buy 1 Slightly OTM PutN... Read More
Market View Neutral Neutral
Strategy Level Advance Beginners
Options Type Call + Put Call + Put
Number of Positions 2 2
Risk Profile Unlimited Limited
Reward Profile Limited Unlimited
Breakeven Point 2 Breakeven Points two break-even points

When and how to use Short Straddle (Sell Straddle or Naked Straddle) and Long Strangle (Buy Strangle)?

  Short Straddle (Sell Straddle or Naked Straddle) Long Strangle (Buy Strangle)
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.

A Long Strangle is meant for special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.

Market View Neutral

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

Neutral

When you are unsure of the direction of the underlying but expecting high volatility in it.

Action
  • Sell Call Option
  • Sell Put Option

  • Buy OTM Call Option
  • Buy OTM Put Option

Suppose Nifty is currently at 10400 and you expect the price to move sharply but are unsure about the direction. In such a scenario, you can execute long strangle strategy by buying Nifty at 10600 and at 10800. The net premium paid will be your maximum loss while the profit will depend on how high or low the index moves.

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

two break-even points

A Options Strangle strategy has two break-even points.

Lower Breakeven Point = Strike Price of Put - Net Premium

Upper Breakeven Point = Strike Price of Call + Net Premium

Compare Risks and Rewards (Short Straddle (Sell Straddle or Naked Straddle) Vs Long Strangle (Buy Strangle))

  Short Straddle (Sell Straddle or Naked Straddle) Long Strangle (Buy Strangle)
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

Max Loss = Net Premium Paid

The maximum loss is limited to the net premium paid in the long strangle strategy. It occurs when the price of the underlying is trading between the strike price of Options.

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.

Unlimited

Maximum profit is achieved when the underlying moves significantly up and down at expiration.

Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid

Or

Profit = Strike Price of Long Put - Price of Underlying - Net Premium Paid

Maximum Profit Scenario Both Option not exercised

One Option exercised

Maximum Loss Scenario

One Option exercised

Both Option not exercised

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

  Short Straddle (Sell Straddle or Naked Straddle) Long Strangle (Buy Strangle)
Advantages

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

Disadvantage

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

The strategy requires significant price movements in the underlying to gain profits.

Simillar Strategies Short Strangle, Long Straddle Long Straddle, Short Strangle