Long Call Vs Short Straddle (Sell Straddle or Naked Straddle) Options Trading Strategy Comparison

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

Long Call Vs Short Straddle (Sell Straddle or Naked Straddle)

	Long Call	Short Straddle (Sell Straddle or Naked 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 Short Straddle (or Sell Straddle or naked Straddle) is a neutral options strategy. This strategy involves simultaneously selling a call and a put option of the same underlying asset, same strike price and same expire date. A Short Straddle strategy is used in case of little volatility market scenarios wherein you expect none or very little movement in the price of the underlying. Such scenarios arise when there is no major news expected until expire. This is a limited profit and unlimited loss strategy. The maximum profit earned when, on expire date, the underlying asset is trading at the strike price at which the options are sold. The maximum loss is unlimited and occurs when underlying asset price moves sharply in upward or down... Read More
Market View	Bullish	Neutral
Strategy Level	Beginners	Advance
Options Type	Call	Call + Put
Number of Positions	1	2
Risk Profile	Limited	Unlimited
Reward Profile	Unlimited	Limited
Breakeven Point	Strike Price + Premium	2 Breakeven Points

When and how to use Long Call and Short Straddle (Sell Straddle or Naked Straddle)?

	Long Call	Short Straddle (Sell Straddle or Naked 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).	This strategy is to be used when you expect a flat market in the coming days with very less movement in the prices of underlying asset.
Market View	Bullish When you're expecting a rise in the price of the underlying and increase in volatility.	Neutral When trader don't expect much movement in its price in near future.
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 Call Option Sell 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 Breakeven Points There are 2 break even points in this strategy. The upper break even is hit when the underlying price is equal to the total of strike price of short call and net premium paid. The lower break even is hit when the underlying price is equal to the difference between strike price of short Put and net premium paid. 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 Short Straddle (Sell Straddle or Naked Straddle))

	Long Call	Short Straddle (Sell Straddle or Naked 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	Unlimited There is a possibility of unlimited loss in the short straddle strategy. The loss occurs when the price of the underlying significantly moves upwards and downwards. Loss = Price of Underlying - Strike Price of Short Call - Net Premium Received Or Loss= Strike Price of Short Put - Price of Underlying - Net Premium Received
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 Maximum profit is limited to the net premium received. The profit is achieved when the price of the underlying is equal to either strike price of short Call or Put.
Maximum Profit Scenario	Underlying closes above the strike price on expiry.	Both Option not exercised
Maximum Loss Scenario	Underlying closes below the strike price on expiry.	One Option exercised

Pros & Cons or Long Call and Short Straddle (Sell Straddle or Naked Straddle)

	Long Call	Short Straddle (Sell Straddle or Naked 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.	It allows you to benefit from double time decay and earn profit in a less volatile scenario.
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.	Unlimited losses if the price of the underlying move significantly in either direction.
Simillar Strategies	Protective Put, Covered Put/Married Put, Bull Call Spread	Short Strangle, Long 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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