Short Put Vs Long Straddle (Buy Straddle) Options Trading Strategy Comparison

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

Short Put Vs Long Straddle (Buy Straddle)

	Short Put	Long Straddle (Buy Straddle)


About Strategy	A short put is another Bullish trading strategy wherein your view is that the price of an underlying will not move below a certain level. The strategy involves entering into a single position of selling a Put Option. It has low profit potential and is exposed to unlimited risk. A short put strategy involves selling a Put Option only. For example if you see that the shares of a Company A will not move below Rs 1000 then you sell the Put Option of that stock at Rs 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this trade. However, if the price of the underlying moves below 1000 then you will incur unlimited losses.	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	Put	Call + Put
Number of Positions	1	2
Risk Profile	Unlimited	Limited
Reward Profile	Limited	Unlimited
Breakeven Point	Strike Price - Premium	2 break-even points

When and how to use Short Put and Long Straddle (Buy Straddle)?

	Short Put	Long Straddle (Buy Straddle)
When to use?	Short Put works well when you're Bullish that the price of the underlying will not fall beyond a certain level.	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 are expecting the price or volatility of the underlying to increase marginally.	Neutral When you are not sure on the direction the underlying would move but are expecting the rise in its volatility.
Action	Sell Put Option A short put strategy involves selling a Put Option only. So if you see that the shares of a Company A will not move below a 1000 then you sell the Put Option of that stock at 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this deal. However, if the price of the underlying moves below 1000 than you will incur losses.	Buy Call Option Buy Put Option
Breakeven Point	Strike Price - Premium	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 (Short Put Vs Long Straddle (Buy Straddle))

	Short Put	Long Straddle (Buy Straddle)
Risks	Unlimited There is no limit to losses incurred in the trade. The risk is when the price of the underlying falls, and the Put is exercised. You are then obliged to buy the underlying at the strike price.	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	Limited The profit is limited to premium received in your account when you sell the Put Option.	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 doesn't go down and options remain exercised.	Max profit is achieved when at one option is exercised.
Maximum Loss Scenario	Underlying goes down and options remain exercised.	When both options are not exercised. This happens when underlying asset price on expire remains at the strike price.

Pros & Cons or Short Put and Long Straddle (Buy Straddle)

	Short Put	Long Straddle (Buy Straddle)
Advantages	It allows you benefit from time decay. And earn income in a rising or range bound market scenario.	Earns you unlimited profit in a volatile market while minimizing the loss.
Disadvantage	It is a high risk strategy and may cause huge losses if the price of the underlying falls steeply.	The price change has to be bigger to make good profits.
Simillar Strategies	Bull Put Spread, Covered Call, Short Straddle	Long Strangle, Short Straddle

Comments

Add a public comment...

Compare