Compare Strategies
SHORT CALL | LONG GUTS | |
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About Strategy |
Short Call Option StrategyA 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 |
Long Guts Option StrategyThis strategy is implemented by a trader when he is neutral on the movements and bullish on volatility i.e. he expects the stock to move in either direction with high magnitude. This strategy involves buying 1 ITM Call Option and 1 ITM Put Option. This strategy can be called as Debit Spread because trader’s account is debited at the time of entering the positions.< .. |
SHORT CALL Vs LONG GUTS - Details
SHORT CALL | LONG GUTS | |
---|---|---|
Market View | Bearish | Neutral |
Type (CE/PE) | CE (Call Option) | CE (Call Option) + PE (Put Option) |
Number Of Positions | 1 | 2 |
Strategy Level | Advance | Beginners |
Reward Profile | Limited | Unlimited |
Risk Profile | Unlimited | Limited |
Breakeven Point | Strike Price of Short Call + Premium Received | Upper Breakeven Point = Net Premium Paid + Strike Price of Long Call, Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid |
SHORT CALL Vs LONG GUTS - When & How to use ?
SHORT CALL | LONG GUTS | |
---|---|---|
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 implemented by a trader when he is neutral on the movements and bullish on volatility i.e. he expects the stock to move in either direction with high magnitude. |
Action | Sell or Write Call Option | Buy 1 ITM Call, Buy 1 ITM Put |
Breakeven Point | Strike Price of Short Call + Premium Received | Upper Breakeven Point = Net Premium Paid + Strike Price of Long Call, Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid |
SHORT CALL Vs LONG GUTS - Risk & Reward
SHORT CALL | LONG GUTS | |
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Maximum Profit Scenario | Max Profit = Premium Received | Price of Underlying - Strike Price of Long Call - Net Premium Paid OR Strike Price of Long Put - Price of Underlying - Premium Paid |
Maximum Loss Scenario | Loss Occurs When Price of Underlying > Strike Price of Short Call + Premium Received | Net Premium Paid + Strike Price of Long Put - Strike Price of Long Call + Commissions Paid |
Risk | Unlimited | Limited |
Reward | Limited | Unlimited |
SHORT CALL Vs LONG GUTS - Strategy Pros & Cons
SHORT CALL | LONG GUTS | |
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Similar Strategies | Covered Put, Covered Calls | Short Put Ladder, Strip, Strap |
Disadvantage | • Unlimited risk to the upside underlying stocks. • Potential loss more than the premium collected. | • More commission involved than simply buying call or put option. • Expensive. |
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. | • Investors can get unlimited profit if the underlying asset goes up or down. • Ability to profit no matter if the market goes in either direction. • Limited loss. |