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

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

Short Straddle (Sell Straddle or Naked Straddle) Vs Long Strangle (Buy Strangle)

	Short Straddle (Sell Straddle or Naked Straddle)	Long Strangle (Buy Strangle)


About Strategy	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	The Long Strangle (or Buy Strangle or Option Strangle) is a neutral strategy wherein Slightly OTM Put Options and Slightly OTM Call are bought simultaneously with same underlying asset and expiry date. This strategy can be used when the trader expects that the underlying stock will experience significant volatility in the near term. It is a limited risk and unlimited reward strategy. The maximum loss is the net premium paid while maximum profit is achieved when the underlying moves either significantly upwards or downwards at expiration. The usual Long Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY Spot Price): Options Strangle Orders OrdersNIFTY Strike Price Buy 1 Slightly OTM PutN... Read More
Market View	Neutral	Neutral
Strategy Level	Advance	Beginners
Options Type	Call + Put	Call + Put
Number of Positions	2	2
Risk Profile	Unlimited	Limited
Reward Profile	Limited	Unlimited
Breakeven Point	2 Breakeven Points	two break-even points

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

	Short Straddle (Sell Straddle or Naked Straddle)	Long Strangle (Buy Strangle)
When to use?	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.	A Long Strangle 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.
Market View	Neutral When trader don't expect much movement in its price in near future.	Neutral When you are unsure of the direction of the underlying but expecting high volatility in it.
Action	Sell Call Option Sell Put Option	Buy OTM Call Option Buy OTM Put Option Suppose Nifty is currently at 10400 and you expect the price to move sharply but are unsure about the direction. In such a scenario, you can execute long strangle strategy by buying Nifty at 10600 and at 10800. The net premium paid will be your maximum loss while the profit will depend on how high or low the index moves.
Breakeven 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	two break-even points A Options Strangle strategy has two break-even points. Lower Breakeven Point = Strike Price of Put - Net Premium Upper Breakeven Point = Strike Price of Call + Net Premium

Compare Risks and Rewards (Short Straddle (Sell Straddle or Naked Straddle) Vs Long Strangle (Buy Strangle))

	Short Straddle (Sell Straddle or Naked Straddle)	Long Strangle (Buy Strangle)
Risks	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	Limited Max Loss = Net Premium Paid The maximum loss is limited to the net premium paid in the long strangle strategy. It occurs when the price of the underlying is trading between the strike price of Options.
Rewards	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.	Unlimited Maximum profit is achieved when the underlying moves significantly up and down at expiration. Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid Or Profit = Strike Price of Long Put - Price of Underlying - Net Premium Paid
Maximum Profit Scenario	Both Option not exercised	One Option exercised
Maximum Loss Scenario	One Option exercised	Both Option not exercised

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

	Short Straddle (Sell Straddle or Naked Straddle)	Long Strangle (Buy Strangle)
Advantages	It allows you to benefit from double time decay and earn profit in a less volatile scenario.
Disadvantage	Unlimited losses if the price of the underlying move significantly in either direction.	The strategy requires significant price movements in the underlying to gain profits.
Simillar Strategies	Short Strangle, Long Straddle	Long Straddle, Short Strangle

Comments

Add a public comment...

Compare