Covered Call Vs Long Strangle (Buy Strangle) Options Trading Strategy Comparison

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

Covered Call Vs Long Strangle (Buy Strangle)

	Covered Call	Long Strangle (Buy Strangle)


About Strategy	A Covered Call is a basic option trading strategy frequently used by traders to protect their huge share holdings. It is a strategy in which you own shares of a company and Sell OTM Call Option of the company in similar proportion. The Call Option would not get exercised unless the stock price increases. Till then you will earn the Premium. This a unlimited risk and limited reward strategy. Let's assume you own TCS Shares and your view is that its price will rise in the near future. You will Sell OTM Call Option of TCS at a price, where you target to sell your shares. You will receive premium amount for selling the Call option and the premium is your income.	The Long Strangle (or Buy Strangle or Option Strangle) is a neutral strategy wherein Slightly OTM Put Options and Slightly OTM Call are bought simultaneously with same underlying asset and expiry date. This strategy can be used when the trader expects that the underlying stock will experience significant volatility in the near term. It is a limited risk and unlimited reward strategy. The maximum loss is the net premium paid while maximum profit is achieved when the underlying moves either significantly upwards or downwards at expiration. The usual Long Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY Spot Price): Options Strangle Orders OrdersNIFTY Strike Price Buy 1 Slightly OTM PutN... Read More
Market View	Bullish	Neutral
Strategy Level	Advance	Beginners
Options Type	Call + Underlying	Call + Put
Number of Positions	2	2
Risk Profile	Unlimited	Limited
Reward Profile	Limited	Unlimited
Breakeven Point	Purchase Price of Underlying- Premium Recieved	two break-even points

When and how to use Covered Call and Long Strangle (Buy Strangle)?

	Covered Call	Long Strangle (Buy Strangle)
When to use?	The covered call option strategy works well when you have a mildly Bullish market view and you expect the price of your holdings to moderately rise in future.	A Long Strangle is meant for special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.
Market View	Bullish When you are expecting a moderate rise in the price of the underlying or less volatility.	Neutral When you are unsure of the direction of the underlying but expecting high volatility in it.
Action	Buy Underlying Sell OTM Call Option Let's assume you own TCS Shares and your view is that its price will rise in the near future. You will Sell OTM Call Option of TCS at a price, where you target to sell your shares. You will receive premium amount for selling the Call option and the premium is your income.	Buy OTM Call Option Buy OTM Put Option Suppose Nifty is currently at 10400 and you expect the price to move sharply but are unsure about the direction. In such a scenario, you can execute long strangle strategy by buying Nifty at 10600 and at 10800. The net premium paid will be your maximum loss while the profit will depend on how high or low the index moves.
Breakeven Point	Purchase Price of Underlying- Premium Recieved	two break-even points A Options Strangle strategy has two break-even points. Lower Breakeven Point = Strike Price of Put - Net Premium Upper Breakeven Point = Strike Price of Call + Net Premium

Compare Risks and Rewards (Covered Call Vs Long Strangle (Buy Strangle))

	Covered Call	Long Strangle (Buy Strangle)
Risks	Unlimited Maximum loss is unlimited and depends on by how much the price of the underlying falls. Loss happens when price of underlying goes below the purchase price of underlying. Loss = (Purchase Price of Underlying - Price of Underlying) + Premium Received	Limited Max Loss = Net Premium Paid The maximum loss is limited to the net premium paid in the long strangle strategy. It occurs when the price of the underlying is trading between the strike price of Options.
Rewards	Limited You earn premium for selling a call. Maximum profit happens when purchase price of underlying moves above the strike price of Call Option. Max Profit= [Call Strike Price - Stock Price Paid] + Premium Received	Unlimited Maximum profit is achieved when the underlying moves significantly up and down at expiration. Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid Or Profit = Strike Price of Long Put - Price of Underlying - Net Premium Paid
Maximum Profit Scenario	Underlying rises to the level of the higher strike or above.	One Option exercised
Maximum Loss Scenario	Underlying below the premium received	Both Option not exercised

Pros & Cons or Covered Call and Long Strangle (Buy Strangle)

	Covered Call	Long Strangle (Buy Strangle)
Advantages	It helps you generate income from your holdings. Also allows you to benefit from 3 movements of your stocks: rise, sidewise and marginal fall.
Disadvantage	Unlimited risk for limited reward.	The strategy requires significant price movements in the underlying to gain profits.
Simillar Strategies	Bull Call Spread	Long Straddle, Short Strangle

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