Short Call Butterfly Vs Covered Strangle Options Trading Strategy Comparison

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

Short Call Butterfly Vs Covered Strangle

	Short Call Butterfly	Covered Strangle


About Strategy	Short Call Butterfly (or Short Butterfly) is a neutral strategy similar to Long Butterfly but bullish on the volatility. This strategy is a limited risk and limited profit strategy. This strategy consists of two long calls at a middle strike (or ATM) and one short call each at a lower and upper strike. All the options must have the same expiration date. Also, the upper and lower strikes (or wings) must both be equidistant from the middle strike (or body). In simple terms, it involves Sell 1 ITM Call, Buy 2 ATM Calls and Sell 1 OTM Call. The strike prices of all Options should be at equal distance from the current price as shown in the example below. The usual Short Butterfly strategy looks like as below for NIFTY current index value as 1... 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	2 Break-even Points	two break-even points

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

	Short Call Butterfly	Covered Strangle
When to use?	This strategy 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.	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 When you are unsure about the direction in the movement in the price of the underlying but are expecting high volatility in it in the near future.	Bullish The Strategy is perfect to apply when you're bullish on the market and expecting less volatility in the market.
Action	Buy 2 ATM Call Sell 1 ITM Call Sell 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	2 Break-even Points There are 2 break even points in this strategy. Lower Break-even = Lower Strike Price + Net Premium Upper Break-even = Higher 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 (Short Call Butterfly Vs Covered Strangle)

	Short Call Butterfly	Covered Strangle
Risks	Limited The maximum risk is limited. Maximum Risk = Higher strike price- Lower Strike Price - Net Premium	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 The profit is limited to the net premium received. This happens when the price of the underlying is trading beyond the range of strike prices at expiration date.	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	All Options exercised or not 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	Only ITM Call 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 Short Call Butterfly and Covered Strangle

	Short Call Butterfly	Covered Strangle
Advantages	This strategy requires no investment as net premium is positive and received. It allows you to benefit from high volatile market scenarios without the need to speculate on the direction of price movement.	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	Profitability depends on significant movement in the price of the underlying.	The substantial risk when the price moves downwards. Risk of assignments.
Simillar Strategies	Long Straddle, Long Call Butterfly	Long Strangle, Short Strangle

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