Long Call Vs Long Call Butterfly Options Trading Strategy Comparison

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

Long Call Vs Long Call Butterfly

	Long Call	Long Call Butterfly


About Strategy	A Long Call Option trading strategy is one of the basic strategies. In this strategy, a trader is Bullish in his market view and expects the market to rise in near future. The strategy involves taking a single position of buying a Call Option (either ITM, ATM or OTM). This strategy has limited risk (max loss is premium paid) and unlimited profit potential. When the trader goes long on call, the trader buys a Call Option and later sells it to earn profits if the price of the underlying asset goes up. When the trader buys a call, he pays the option premium in exchange for the right (but not the obligation) to buy share or index at a fixed price by a certain expiry date. This premium is the only amount at-the-risk for trader in case the mark... Read More	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
Market View	Bullish	Neutral
Strategy Level	Beginners	Advance
Options Type	Call	Call
Number of Positions	1	4
Risk Profile	Limited	Limited
Reward Profile	Unlimited	Limited
Breakeven Point	Strike Price + Premium

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

	Long Call	Long Call Butterfly
When to use?	A long call Option strategy works well when you expect the underlying instrument to move positively in the recent future. If you expect XYZ company to do well in near future then you can buy Call Options of the company. You will earn the profit if the price of the company shares closes above the Strike Price on the expiry date. However, if underlying shares don't do well and move downwards on expiry date you will incur losses (i.e. lose premium paid).	This strategy should be used when you're expecting no volatility in the price of the underlying.
Market View	Bullish When you're expecting a rise in the price of the underlying and increase in volatility.	Neutral Neutral on the underlying asset and bearish on the volatility.
Action	Buy Call Option A long call strategy involves buying a call option only. So if you expect Reliance to do well in near future then you can buy Call Options of Reliance. You will earn a profit if the price of Reliance shares closes above the Strike price on the expiry date. However, if Reliance shares don't move up within the expiry date you will incur losses.	Sell 2 ATM Call Buy 1 ITM Call Buy 1 OTM Call
Breakeven Point	Strike Price + Premium The break-even point for Long Call strategy is the sum of the strike price and premium paid. Traders earn profits if the price of the underlying asset moves above the break-even point. Traders loose premium if the price of the underlying asset falls below the break-even point.	Upper Breakeven = Higher Strike Price - Net Premium Lower Breakeven = Lower Strike Price + Net Premium

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

	Long Call	Long Call Butterfly
Risks	Limited The risk is limited to the premium paid for the call option irrespective of the price of the underlying on the expiration date. Max Loss = Premium Paid	Limited Risk in the Long Call Butterfly options strategy is limited to the net premium paid.
Rewards	Unlimited There is no limit to maximum profit attainable in the long call option strategy. The trade gets profitable when price of the underlying is greater than strike price plus premium. Profit = Price of Underlying - (Strike Price + Premium Paid)	Limited Rewards in the Long Call Butterfly options strategy is limited to the adjacent strikes minus net premium debit.
Maximum Profit Scenario	Underlying closes above the strike price on expiry.	Only ITM Call exercised
Maximum Loss Scenario	Underlying closes below the strike price on expiry.	All options exercised or all options not exercised.

Pros & Cons or Long Call and Long Call Butterfly

	Long Call	Long Call Butterfly
Advantages	Buying a Call Option instead of the underlying allows you to gain more profits by investing less and limiting your losses to minimum.	Profit earning strategy with limited risk in a less volatile market.
Disadvantage	Call options have a limited lifespan. So, in case the price of your underlying stock is not higher than the strike price before the expiry date, the call option will expire worthlessly and you will lose the premium paid.	Premiums and brokerage paid on multiple position may eat your profits.
Simillar Strategies	Protective Put, Covered Put/Married Put, Bull Call Spread

1 Comments

1. Justin Gilead

| Link|August 16, 2022 9:47:47 PMReply

You partially get it wrong! The max loss will be the equivalent of the call premium paid for a single call position, indeed ; for a synthetic call options, it will be likened to the call options premium that you actually haven't paid as the call position has just been replicated along with the help of a long put and a long underlying though. For instance, if you purchase an ITM put, in addition to the long underlying, then the overall cost will be quite high, but the max risk entailed in the position will be the equivalent of the cheap OTM call options (only time value) that stands on the other side and on the same strike. In short, you may pay more to risk less with a synthetic options ; it definitely does the trick for hedging purposes then.

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