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Bear Put Spread Vs Protective Call (Synthetic Long Put) Options Trading Strategy Comparison

Compare Bear Put Spread and Protective Call (Synthetic Long Put) options trading strategies. Find similarities and differences between Bear Put Spread and Protective Call (Synthetic Long Put) strategies. Find the best options trading strategy for your trading needs.

Bear Put Spread Vs Protective Call (Synthetic Long Put)

  Bear Put Spread Protective Call (Synthetic Long Put)
Bear Put Spread Logo Protective Call (Synthetic Long Put) Logo
About Strategy The Bear Put strategy involves selling a Put Option while simultaneously buying a Put option. Contrary to Bear Call Spread, here you pay the higher premium and receive the lower premium. So there is a net debit in premium. Your risk is capped at the difference in premiums while your profit will be limited to the difference in strike prices of Put Option minus net premiums. This strategy is used when the trader believes that the price of underlying asset will go down moderately. This strategy is also known as the bear put debit spread as a net debit is taken upon entering the trade. This strategy has a limited risk as well as limited rewards. How to use the bear put spread options strategy? The bear put spread strategy looks like... Read More The Protective Call strategy is a hedging strategy. In this strategy, a trader shorts position in the underlying asset (sell shares or sell futures) and buys an ATM Call Option to cover against the rise in the price of the underlying. This strategy is opposite of the Synthetic Call strategy. It is used when the trader is bearish on the underlying asset and would like to protect 'rise in the price' of the underlying asset. The risk is limited in the strategy while the rewards are unlimited. How to use a Protective Call trading strategy? The usual Protective Call Strategy looks like as below for State Bank of India (SBI) Shares which are currently traded at Rs 275 (SBI Spot Price): Protective Call Orders - SBI Stock Orde... Read More
Market View Bearish Bearish
Strategy Level Advance Beginners
Options Type Put Call + Underlying
Number of Positions 2 2
Risk Profile Limited Limited
Reward Profile Limited Unlimited
Breakeven Point Strike Price of Long Put - Net Premium Underlying Price - Call Premium

When and how to use Bear Put Spread and Protective Call (Synthetic Long Put)?

  Bear Put Spread Protective Call (Synthetic Long Put)
When to use?

The bear call spread options strategy is used when you are bearish in market view. The strategy minimizes your risk in the event of prime movements going against your expectations.

The Protective Call option strategy is used when you are bearish in market view and want to short shares to benefit from it. The strategy minimizes your risk in the event of prime movements going against your expectations.

Market View Bearish

When you are expecting the price of the underlying to moderately drop.

Bearish

When you are bearish on the underlying but want to protect the upside.

Action
  • Buy ITM Put Option
  • Sell OTM Put Option

  • Sell Underlying Stock or Future
  • Buy ATM Call Option

Breakeven Point Strike Price of Long Put - Net Premium

The breakeven point is achieved when the price of the underlying is equal to strike price of long Put minus net premium.

Underlying Price - Call Premium

When the price of the underlying is equal to the total of the sale price of the underlying and premium paid.

Compare Risks and Rewards (Bear Put Spread Vs Protective Call (Synthetic Long Put))

  Bear Put Spread Protective Call (Synthetic Long Put)
Risks Limited

The maximum loss is limited to net premium paid. It occurs when the price of the underlying is less than strike price of long Put..

Max Loss = Net Premium Paid.

Limited

The maximum loss is limited to the premium paid for buying the Call option. It occurs when the price of the underlying is less than the strike price of Call Option.

Maximum Loss = Call Strike Price - Sale Price of Underlying + Premium Paid

Rewards Limited

The maximum profit is achieved when the strike price of short Put is greater than the price of the underlying..

Max Profit = Strike Price of Long Put - Strike Price of Short Put - Net Premium Paid.

Unlimited

The maximum profit is unlimited in this strategy. The profit is dependent on the sale price of the underlying.

Profit = Sale Price of Underlying - Price of Underlying - Premium Paid

Maximum Profit Scenario

Underlying goes down and both options exercised

Underlying goes down and Option not exercised

Maximum Loss Scenario

Underlying goes up and both options not exercised

Underlying goes down and Option exercised

Pros & Cons or Bear Put Spread and Protective Call (Synthetic Long Put)

  Bear Put Spread Protective Call (Synthetic Long Put)
Advantages

Risk is limited. It reduces the cost of investment.

Minimizes the risk when entering into a short position while keeping the profit potential limited.

Disadvantage

The profit is limited.

Premium paid for Call Option may eat into your profits.

Simillar Strategies Bear Call Spread, Bull Call Spread Long Put







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