Compare Trading Platform Short Straddle (Sell Straddle or Naked Straddle) and Short Call Butterfly. Find similarities and differences between Short Straddle (Sell Straddle or Naked Straddle) and Short Call Butterfly Trading Softwares. Find the most powerful trading platform. Find which trading software is better among Short Straddle (Sell Straddle or Naked Straddle) and Short Call Butterfly.
| Short Straddle (Sell Straddle or Naked Straddle) | Short Call Butterfly | |
|---|---|---|
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| 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 |
| 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 |
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| 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.
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| 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 |
| 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 |
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