A trader shorts or writes a Call Option when he feels that underlying stock price is likely to go down. Selling Call Option is a strategy preferred for experienced traders.
However this strategy is very risky in nature. If the stock rallies on the upside, your risk becomes potentially unquantifiable and unlimited. If the strategy
This strategy is just the opposite of Long Straddle. A trader should adopt this strategy when he expects less volatility in the near future. Here, a trader will sell one Call Option & one Put Option of the same strike price, same expiry date and of the same underlying asset. If the stock/index hovers around the same levels then both the options will expire worthless an ..
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call+ Net Premium
SHORT CALL Vs SHORT STRADDLE - When & How to use ?
SHORT CALL
SHORT STRADDLE
Market View
Bearish
Neutral
When to use?
It is an aggressive strategy and involves huge risks. It should be used only in case where trader is certain about the bearish market view on the underlying.
This strategy is work well when an investor expect a flat market in the coming days with very less movement in the prices of underlying asset.
Action
Sell or Write Call Option
Sell Call Option, Sell Put Option
Breakeven Point
Strike Price of Short Call + Premium Received
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call+ Net Premium
SHORT CALL Vs SHORT STRADDLE - Risk & Reward
SHORT CALL
SHORT STRADDLE
Maximum Profit Scenario
Max Profit = Premium Received
Max Profit = Net Premium Received - Commissions Paid
Maximum Loss Scenario
Loss Occurs When Price of Underlying > Strike Price of Short Call + Premium Received
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Risk
Unlimited
Unlimited
Reward
Limited
Limited
SHORT CALL Vs SHORT STRADDLE - Strategy Pros & Cons
SHORT CALL
SHORT STRADDLE
Similar Strategies
Covered Put, Covered Calls
Short Strangle
Disadvantage
• Unlimited risk to the upside underlying stocks. • Potential loss more than the premium collected.
• Unlimited risk. • If the price of the underlying asset moves in either direction then huge losses can occur.
Advantages
• With the help of this strategy, traders can book profit from falling prices in the underlying asset. • Less investment, more profit. • Traders can book profit when underlying stock price fall, move sideways or rise by a small amount.
• A trader can earn profit even when there is no volatility in the market . • Allows you to benefit from double time decay. • Trader can collect premium from puts and calls option .
