Compare Strategies
PROTECTIVE PUT | LONG STRADDLE | |
---|---|---|
![]() |
![]() |
|
About Strategy |
Protective Put Option StrategyProtective Put Strategy is a hedging strategy where trader guards himself from the downside risk. This strategy is adopted when a trader is long on the underlying asset but skeptical of the downside. He will buy one ATM Put Option to hedge his position. Now, if the underlying asset moves either up or down, the trader is in a safe position.
|
Long Straddle Option StrategyStraddle 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 .. |
PROTECTIVE PUT Vs LONG STRADDLE - Details
PROTECTIVE PUT | LONG STRADDLE | |
---|---|---|
Market View | Bullish | Neutral |
Type (CE/PE) | PE (Put Option) | CE (Call Option) + PE (Put Option) |
Number Of Positions | 1 | 2 |
Strategy Level | Beginners | Beginners |
Reward Profile | Unlimited | Unlimited |
Risk Profile | Limited | Limited |
Breakeven Point | Purchase Price of Underlying + Premium Paid | Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call + Net Premium |
PROTECTIVE PUT Vs LONG STRADDLE - When & How to use ?
PROTECTIVE PUT | LONG STRADDLE | |
---|---|---|
Market View | Bullish | Neutral |
When to use? | This strategy is adopted when a trader is long on the underlying asset but skeptical of the downside. | 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. |
Action | Buy 1 ATM Put | Buy Call Option, Buy Put Option |
Breakeven Point | Purchase Price of Underlying + Premium Paid | Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call + Net Premium |
PROTECTIVE PUT Vs LONG STRADDLE - Risk & Reward
PROTECTIVE PUT | LONG STRADDLE | |
---|---|---|
Maximum Profit Scenario | Price of Underlying - Purchase Price of Underlying - Premium Paid | Max profit is achieved when at one option is exercised. |
Maximum Loss Scenario | Premium Paid + Purchase Price of Underlying - Put Strike + Commissions Paid | Maximum Loss = Net Premium Paid |
Risk | Limited | Limited |
Reward | Unlimited | Unlimited |
PROTECTIVE PUT Vs LONG STRADDLE - Strategy Pros & Cons
PROTECTIVE PUT | LONG STRADDLE | |
---|---|---|
Similar Strategies | Long Call, Call Backspread | Bear Put Spread |
Disadvantage | • Value of protective put position decreases as time passes • Holding period of the protective put can be affected by the timing as a result tax rate on the profit or loss from the stock can be affected. | • 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. |
Advantages | • Unlimited potential profit due to indefinitely rise in the underlying stock price . • This strategy allows you to hold on to your stocks while insuring against losses. • Hedging strategy, trader can guard himself from the downside risk. | • Unlimited potential beyond the breakeven point in either direction . • Book your profit from highly volatile stocks without determining the direction. • Limited risk, more profit. |