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Comparision (LONG STRADDLE VS RATIO CALL SPREAD)

 

Compare Strategies

  LONG STRADDLE RATIO CALL SPREAD
About Strategy

Long Straddle Option Strategy 

Straddle 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

Ratio Call Spread Option Strategy 

As the name suggests, a ratio of 2:1 is followed i.e. buy 1 ITM Call and simultaneously sell OTM Calls double the number of ITM Calls (In this case 2). This strategy is used by trader who is neutral on the market and bearish on the volatility in the near future. Here profits will be capped up to the premium amount and risk will be potentially unlimited since he is ..

LONG STRADDLE Vs RATIO CALL SPREAD - Details

LONG STRADDLE RATIO CALL SPREAD
Market View Neutral Neutral
Type (CE/PE) CE (Call Option) + PE (Put Option) CE (Call Option)
Number Of Positions 2 3
Strategy Level Beginners Beginners
Reward Profile Unlimited Limited
Risk Profile Limited Unlimited
Breakeven Point Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call + Net Premium Upper Breakeven Point = Strike Price of Short Calls + (Points of Maximum Profit / Number of Uncovered Calls), Lower Breakeven Point = Strike Price of Long Call +/- Net Premium Paid or Received

LONG STRADDLE Vs RATIO CALL SPREAD - When & How to use ?

LONG STRADDLE RATIO CALL SPREAD
Market View Neutral Neutral
When to use? 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. This strategy is used by trader who is neutral on the market and bearish on the volatility in the near future. Here profits will be capped up to the premium amount and risk will be potentially unlimited since he is selling two calls.
Action Buy Call Option, Buy Put Option Buy 1 ITM Call, Sell 2 OTM Calls
Breakeven Point Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call + Net Premium Upper Breakeven Point = Strike Price of Short Calls + (Points of Maximum Profit / Number of Uncovered Calls), Lower Breakeven Point = Strike Price of Long Call +/- Net Premium Paid or Received

LONG STRADDLE Vs RATIO CALL SPREAD - Risk & Reward

LONG STRADDLE RATIO CALL SPREAD
Maximum Profit Scenario Max profit is achieved when at one option is exercised. Strike Price of Short Call - Strike Price of Long Call + Net Premium Received - Commissions Paid
Maximum Loss Scenario Maximum Loss = Net Premium Paid Price of Underlying - Strike Price of Short Calls - Max Profit + Commissions Paid
Risk Limited Unlimited
Reward Unlimited Limited

LONG STRADDLE Vs RATIO CALL SPREAD - Strategy Pros & Cons

LONG STRADDLE RATIO CALL SPREAD
Similar Strategies Bear Put Spread Variable Ratio Write
Disadvantage • 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. • Unlimited potential loss. • Complex strategy with limited profit.
Advantages • Unlimited potential beyond the breakeven point in either direction . • Book your profit from highly volatile stocks without determining the direction. • Limited risk, more profit. • Downside risk is almost zero. • Investors can book profit from share prices moving within given limits. • Trader can maximise profit when the share closes at the upper breakeven point.

LONG STRADDLE

RATIO CALL SPREAD