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

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

Long Call Vs Long Straddle (Buy Straddle)

	Long Call	Long Straddle (Buy Straddle)


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	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	Beginners	Beginners
Options Type	Call	Call + Put
Number of Positions	1	2
Risk Profile	Limited	Limited
Reward Profile	Unlimited	Unlimited
Breakeven Point	Strike Price + Premium	2 break-even points

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

	Long Call	Long Straddle (Buy Straddle)
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).	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're expecting a rise in the price of the underlying and increase in volatility.	Neutral When you are not sure on the direction the underlying would move but are expecting the rise in its 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.	Buy Call Option Buy Put Option
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.	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 (Long Call Vs Long Straddle (Buy Straddle))

	Long Call	Long Straddle (Buy Straddle)
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 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	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)	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 closes above the strike price on expiry.	Max profit is achieved when at one option is exercised.
Maximum Loss Scenario	Underlying closes below the strike price on expiry.	When both options are not exercised. This happens when underlying asset price on expire remains at the strike price.

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

	Long Call	Long Straddle (Buy Straddle)
Advantages	Buying a Call Option instead of the underlying allows you to gain more profits by investing less and limiting your losses to minimum.	Earns you unlimited profit in a volatile market while minimizing the loss.
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.	The price change has to be bigger to make good profits.
Simillar Strategies	Protective Put, Covered Put/Married Put, Bull Call Spread	Long Strangle, Short Straddle

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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