Compare Strategies
SHORT STRANGLE | PROTECTIVE COLLAR | |
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About Strategy |
Short Strangle Option StrategyThis strategy is similar to Short Straddle; the only difference is of the strike prices at which the positions are built. Short Strangle involves selling of one OTM Call Option and selling of one OTM Put Option, of the same expiry date and same underlying asset. Here the probability of making profits is more as there is a spread between the two strike prices, and if |
Protective Collar Strategy This Strategy is implemented when the investor requires downside protection for the short - to medium term but at lower cost. Buying protective puts can be an expensive proposition and writing OTM calls can defray the cost of the puts quite substantially. Protective Collar is considered as bearish to neutral strategy. In this strategy risk and reward is both are limited. This .. |
SHORT STRANGLE Vs PROTECTIVE COLLAR - Details
SHORT STRANGLE | PROTECTIVE COLLAR | |
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Market View | Neutral | Neutral |
Type (CE/PE) | CE (Call Option) + PE (Put Option) | CE (Call Option) + PE (Put Option) |
Number Of Positions | 2 | 2 |
Strategy Level | Advance | Beginners |
Reward Profile | Limited | Limited |
Risk Profile | Unlimited | Limited |
Breakeven Point | Lower Break-even = Strike Price of Put - Net Premium, Upper Break-even = Strike Price of Call+ Net Premium | Purchase Price of Underlying + Net Premium Paid |
SHORT STRANGLE Vs PROTECTIVE COLLAR - When & How to use ?
SHORT STRANGLE | PROTECTIVE COLLAR | |
---|---|---|
Market View | Neutral | Neutral |
When to use? | This strategy is perfect in a neutral market scenario when the underlying is expected to be less volatile. | This Strategy is implemented when the investor requires downside protection for the short - to medium term but at lower cost. |
Action | Sell OTM Call, Sell OTM Put | • Short 1 Call Option, • Long 1 Put Option |
Breakeven Point | Lower Break-even = Strike Price of Put - Net Premium, Upper Break-even = Strike Price of Call+ Net Premium | Purchase Price of Underlying + Net Premium Paid |
SHORT STRANGLE Vs PROTECTIVE COLLAR - Risk & Reward
SHORT STRANGLE | PROTECTIVE COLLAR | |
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Maximum Profit Scenario | Maximum Profit = Net Premium Received | • Call strike - stock purchase price - net premium paid + net credit received |
Maximum Loss Scenario | Loss = Price of Underlying - Strike Price of Short Call - Net Premium Received | • Stock purchase price - put strike - net premium paid - put strike + net credit received |
Risk | Unlimited | Limited |
Reward | Limited | Limited |
SHORT STRANGLE Vs PROTECTIVE COLLAR - Strategy Pros & Cons
SHORT STRANGLE | PROTECTIVE COLLAR | |
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Similar Strategies | Short Straddle, Long Strangle | Bull Put Spread, Bull Call Spread |
Disadvantage | • Unlimited loss is associated with this strategy, not recommended for beginners. • Limited reward amount. | • Potential profit is lower or limited. |
Advantages | • Higher chance of profitability due to selling of OTM options. • Advantage from double time decay and a contraction in volatility. • Traders can book profit when underlying asset stays within a tight trading range. | The Risk is limited. |