Long Call Butterfly Vs Covered Strangle Options Trading Strategy Comparison

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

Long Call Butterfly Vs Covered Strangle

	Long Call Butterfly	Covered Strangle


About Strategy	Long Call Butterfly is a neutral strategy where very low volatility in the price of underlying is expected. The strategy is a combination of bull Spread and bear Spread. It involves Buy 1 ITM Call, Sell 2 ATM Calls and Buy 1 OTM Call. The strike prices of all Options should be at equal distance from the current price. Suppose Nifty is currently trading at 10400. You expect very little volatility in it. You can implement the Long Call Butterfly by buying 1 ITM Call Option at 10300, selling 2 ATM Nifty Call Options at 10400, buying 1 OTM Call Option at 10500. Ensure that strike prices of Options are at equidistance. Your loss will be limited to the net premium paid on 4 positions while profit will be limited to strike price of short calls.... Read More	The covered strangle option strategy is a bullish strategy. The strategy is created by owning or buying a stock and selling an OTM Call and OTM Put. It is called covered strangle because the upside risk of the strangle is covered or minimized. The strategy is perfect to use when you are prepared to sell the holding or bought shares at a higher price if the market moves up but would also is ready to buy more shares if the market moves downwards. The profit and in this strategy is unlimited while the risk is only on the downside.
Market View	Neutral	Bullish
Strategy Level	Advance	Advance
Options Type	Call	Call + Put + Underlying
Number of Positions	4	3
Risk Profile	Limited	Limited
Reward Profile	Limited	Limited
Breakeven Point		two break-even points

When and how to use Long Call Butterfly and Covered Strangle?

	Long Call Butterfly	Covered Strangle
When to use?	This strategy should be used when you're expecting no volatility in the price of the underlying.	A covered strangle strategy can be used when you are bullish on the market but also want to cover any downside risk. You are prepared to sell the shares on profit but are also willing to buy more shares in case the prices fall.
Market View	Neutral Neutral on the underlying asset and bearish on the volatility.	Bullish The Strategy is perfect to apply when you're bullish on the market and expecting less volatility in the market.
Action	Sell 2 ATM Call Buy 1 ITM Call Buy 1 OTM Call	Buy 100 shares + Sell OTM Call +Sell OTM Put The covered strangle options strategy can be executed by buying 100 shares of a stock while simultaneously selling an OTM Put and Call of the same the stock and similar expiration date.
Breakeven Point	Upper Breakeven = Higher Strike Price - Net Premium Lower Breakeven = Lower Strike Price + Net Premium	two break-even points There are 2 break-even points in the covered strangle strategy. One is the Upper break even point which is the sum of strike price of the Call option and premium received while the other is the lower break-even point which is the difference strike price of short Put and premium received.

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

	Long Call Butterfly	Covered Strangle
Risks	Limited Risk in the Long Call Butterfly options strategy is limited to the net premium paid.	Limited The risk on this strategy is only on the downside when the price moves below the strike price of the Put option.
Rewards	Limited Rewards in the Long Call Butterfly options strategy is limited to the adjacent strikes minus net premium debit.	Limited The maximum profit on this strategy happens when the stock price is above the call price on expiry. The profit is the total of the gain from buying/selling stocks and net premium received on selling options.
Maximum Profit Scenario	Only ITM Call exercised	You will earn the maximum profit when the price of the stock is above the Call option strike price on expiry. You will be assigned on the Call option, would be able to sell holding shares on profit while retaining the premiums received while selling the options.
Maximum Loss Scenario	All options exercised or all options not exercised.	The maximum loss would be when the stock price falls drastically and turns worthless. The premiums received while selling the options will compensate for some of the loss.

Pros & Cons or Long Call Butterfly and Covered Strangle

	Long Call Butterfly	Covered Strangle
Advantages	Profit earning strategy with limited risk in a less volatile market.	As the strategy involves buying shares when prices fall, there is long-term gain even if their short-term loss. There is no upside risk due to the long position in stocks. Allows you to earn income in a moderately bullish market.
Disadvantage	Premiums and brokerage paid on multiple position may eat your profits.	The substantial risk when the price moves downwards. Risk of assignments.
Simillar Strategies		Long Strangle, Short Strangle

Comments

Add a public comment...

Compare