Straddle is neither bullish nor bearish strategy; it is a market neutral strategy. Here a trader wishes to take advantage of the volatility in the market. This strategy involves buying of one Call option and one Put option of the same strike price, same expiry date and of the same underlying asset. Now a trader is bound to make profits once stock moves in either direc
This strategy is simply the reversal of the Synthetic Call Strategy. This strategy is implemented when a trader is bearish on the market and expects to go down. Trader will short underlying stock in the cash market and buy either an ATM Call Option or OTM Call Option. The Call Option is bought to protect / hedge the upside risk on the short position. The ..
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call + Net Premium
Sale Price of Underlying + Premium Paid
LONG STRADDLE Vs PROTECTIVE CALL - When & How to use ?
LONG STRADDLE
PROTECTIVE CALL
Market View
Neutral
Bearish
When to use?
This options strategy is work well when and investor market view is bearish. The strategy minimizes your risk in the event of prime movements going against your expectations.
This strategy is implemented when a trader is bearish on the market and expects to go down.
Action
Buy Call Option, Buy Put Option
Buy 1 ATM Call
Breakeven Point
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call + Net Premium
Sale Price of Underlying + Premium Paid
LONG STRADDLE Vs PROTECTIVE CALL - Risk & Reward
LONG STRADDLE
PROTECTIVE CALL
Maximum Profit Scenario
Max profit is achieved when at one option is exercised.
Sale Price of Underlying - Price of Underlying - Premium Paid
Maximum Loss Scenario
Maximum Loss = Net Premium Paid
Premium Paid + Call Strike Price - Sale Price of Underlying + Commissions Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
LONG STRADDLE Vs PROTECTIVE CALL - Strategy Pros & Cons
LONG STRADDLE
PROTECTIVE CALL
Similar Strategies
Bear Put Spread
Put Backspread, Long Put
Disadvantage
• There should be continuous movement of the stock and options price for this strategy to be profitable. • Time decay hurts long option if the strike price, expiration date or underlying stock are badly chosen.
• Profitable when market moves as expected. • Not good for beginners.
Advantages
• Unlimited potential beyond the breakeven point in either direction . • Book your profit from highly volatile stocks without determining the direction. • Limited risk, more profit.
• Limited risk if the market moves in opposite direction as expected. • Allows you to keep open a profitable position to make further profits. • Unlimited profit potential.
