This is one of the basic strategies as it involves entering into one position i.e. buying the Call Option only. Any investor who buys the Call Option will be bullish in nature and would be expecting the market to give decent returns in the near future.
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
LONG CALL Vs SHORT STRADDLE - When & How to use ?
LONG CALL
SHORT STRADDLE
Market View
Bullish (Any investor who buys the Call Option will be bullish in nature and would be expecting the market to give decent returns in the near future.)
Neutral
When to use?
This strategy work when an investor expect the underlying instrument move in upward direction.
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
Buying Call option
Sell Call Option, Sell Put Option
Breakeven Point
Strike price + Premium
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call+ Net Premium
LONG CALL Vs SHORT STRADDLE - Risk & Reward
LONG CALL
SHORT STRADDLE
Maximum Profit Scenario
Underlying Asset close above from the strike price on expiry.
Max Profit = Net Premium Received - Commissions Paid
Maximum Loss Scenario
Premium Paid
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Risk
Limited
Unlimited
Reward
Unlimited
Limited
LONG CALL Vs SHORT STRADDLE - Strategy Pros & Cons
LONG CALL
SHORT STRADDLE
Similar Strategies
Protective Put
Short Strangle
Disadvantage
• In this strategy, there is not protection against the underlying stock falling in value. • 100% loss if the strike price, expiration dates or underlying stocks are badly chosen.
• Unlimited risk. • If the price of the underlying asset moves in either direction then huge losses can occur.
Advantages
• Less investment, more profit. • Unlimited profit with limited risk. • High leverage than simply owning the stock.
• 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 .
