Collar Vs Long Straddle (Buy Straddle) Options Trading Strategy Comparison

Compare Collar and Long Straddle (Buy Straddle) options trading strategies. Find similarities and differences between Collar and Long Straddle (Buy Straddle) strategies. Find the best options trading strategy for your trading needs.

Collar Vs Long Straddle (Buy Straddle)

	Collar	Long Straddle (Buy Straddle)


About Strategy	A Collar is similar to Covered Call but involves another position of buying a Put Option to cover the fall in the price of the underlying. It involves buying an ATM Put Option & selling an OTM Call Option of the underlying asset. It is a low risk strategy since the Put Option minimizes the downside risk. However, the rewards are also limited and is perfect for conservatively Bullish market view. Suppose you are holding shares of SBI currently trading at Rs 250. You can deploy a collar strategy by selling a Call Option of strike price Rs 300 while at the same time purchasing a Rs 200 strike price Put option. If the price rises to Rs 300, your benefit from increase in value of your holdings and you will lose net premiums. If the price falls... Read More	The Long Straddle (or Buy Straddle) is a neutral strategy. This strategy involves simultaneously buying a call and a put option of the same underlying asset, same strike price and same expire date. A Long Straddle strategy is used in case of highly volatile market scenarios wherein you expect a big movement in the price of the underlying but are not sure of the direction. Such scenarios arise when company declare results, budget, war-like situation etc. This is an unlimited profit and limited risk strategy. The profit earns in this strategy is unlimited. Higher volatility results in higher profits. The maximum loss is limited to the net premium paid. The max loss occurs when underlying asset price on expire remains at the strike price. ... Read More
Market View	Bullish	Neutral
Strategy Level	Advance	Beginners
Options Type	Call + Put + Underlying	Call + Put
Number of Positions	3	2
Risk Profile	Limited	Limited
Reward Profile	Limited	Unlimited
Breakeven Point	Price of Features - Call Premium + Put Premium	2 break-even points

When and how to use Collar and Long Straddle (Buy Straddle)?

	Collar	Long Straddle (Buy Straddle)
When to use?	The Collar strategy is perfect if you're Bullish for the underlying you're holding but are concerned with risk and want to protect your losses.	The strategy is perfect to use when there is market volatility expected due to results, elections, budget, policy change, war etc.
Market View	Bullish When you are of the view that the price of the underlying will move up but also want to protect the downside.	Neutral When you are not sure on the direction the underlying would move but are expecting the rise in its volatility.
Action	Buy Underlying Buy 1 ATM Put Option Sell 1 OTM Call Option	Buy Call Option Buy Put Option
Breakeven Point	Price of Features - Call Premium + Put Premium	2 break-even points A straddle has two break-even points. Lower Breakeven = Strike Price of Put - Net Premium Upper breakeven = Strike Price of Call + Net Premium

Compare Risks and Rewards (Collar Vs Long Straddle (Buy Straddle))

	Collar	Long Straddle (Buy Straddle)
Risks	Limited You will incur maximum losses when price of the underlying is less than the strike price of the Put Option. Max Loss = Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received	Limited The maximum loss for long straddle strategy is limited to the net premium paid. It happens the price of underlying is equal to strike price of options. Maximum Loss = Net Premium Paid
Rewards	Limited You will incur maximum profit when price of underlying is greater than the strike price of call option. Max Profit = Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received	Unlimited There is unlimited profit opportunity in this strategy irrespective of the direction of the underlying. Profit occurs when the price of the underlying is greater than strike price of long Put or lesser than strike price of long Call.
Maximum Profit Scenario	Underlying goes up and Call option exercised	Max profit is achieved when at one option is exercised.
Maximum Loss Scenario	Underlying goes down and Put option exercised	When both options are not exercised. This happens when underlying asset price on expire remains at the strike price.

Pros & Cons or Collar and Long Straddle (Buy Straddle)

	Collar	Long Straddle (Buy Straddle)
Advantages	It protects the losses on underlying asset.	Earns you unlimited profit in a volatile market while minimizing the loss.
Disadvantage	The profit is limited	The price change has to be bigger to make good profits.
Simillar Strategies	Covered Put Bull, Call Spread, Bull Put Spread	Long Strangle, Short Straddle

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