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

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

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

	Short Straddle (Sell Straddle or Naked Straddle)	Short Call Butterfly


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	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
Market View	Neutral	Neutral
Strategy Level	Advance	Advance
Options Type	Call + Put	Call
Number of Positions	2	4
Risk Profile	Unlimited	Limited
Reward Profile	Limited	Limited
Breakeven Point	2 Breakeven Points	2 Break-even Points

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

	Short Straddle (Sell Straddle or Naked Straddle)	Short Call Butterfly
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.	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.
Market View	Neutral When trader don't expect much movement in its price in near future.	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.
Action	Sell Call Option Sell Put Option	Buy 2 ATM Call Sell 1 ITM Call Sell 1 OTM Call
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	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

Compare Risks and Rewards (Short Straddle (Sell Straddle or Naked Straddle) Vs Short Call Butterfly)

	Short Straddle (Sell Straddle or Naked Straddle)	Short Call Butterfly
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 The maximum risk is limited. Maximum Risk = Higher strike price- Lower Strike Price - Net Premium
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.	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.
Maximum Profit Scenario	Both Option not exercised	All Options exercised or not exercised
Maximum Loss Scenario	One Option exercised	Only ITM Call exercised

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

	Short Straddle (Sell Straddle or Naked Straddle)	Short Call Butterfly
Advantages	It allows you to benefit from double time decay and earn profit in a less volatile scenario.	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.
Disadvantage	Unlimited losses if the price of the underlying move significantly in either direction.	Profitability depends on significant movement in the price of the underlying.
Simillar Strategies	Short Strangle, Long Straddle	Long Straddle, Long Call Butterfly

Comments

Add a public comment...

Compare