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

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

Bull Call Spread Vs Protective Call (Synthetic Long Put)

  Bull Call Spread Protective Call (Synthetic Long Put)
Bull Call Spread Logo Protective Call (Synthetic Long Put) Logo
About Strategy A Bull Call Spread (or Bull Call Debit Spread) strategy is meant for investors who are moderately bullish of the market and are expecting mild rise in the price of underlying. The strategy involves taking two positions of buying a Call Option and selling of a Call Option. The risk and reward in this strategy is limited. A Bull Call Spread strategy involves Buy ITM Call Option and Sell OTM Call Option.For example, if you are of the view that NIFTY will rise moderately in near future then you can Buy NIFTY Call Option at ITM and Sell Nifty Call Option at OTM. You will earn massively when both of your Options are exercised and incur huge losses when both Options are not exercised. 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 Bullish Bearish
Strategy Level Beginners Beginners
Options Type Call Call + Underlying
Number of Positions 2 2
Risk Profile Limited Limited
Reward Profile Limited Unlimited
Breakeven Point Strike price of purchased call + net premium paid Underlying Price - Call Premium

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

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

A Bull Call Spread strategy works well when you're Bullish of the market but expect the underlying to gain mildly in near future.

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 Bullish

When you are expecting a moderate rise in the price of the underlying.

Bearish

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

Action
  • Buy ITM Call Option
  • Sell OTM Call Option

A Bull Call Spread strategy involves Buy ITM Call Option + Sell OTM Call Option.

For example, if you are of the view that Nifty will rise moderately in near future then you can Buy NIFTY Call Option at ITM and Sell NIFTY 50 Call Option at OTM. You will earn massively when both of your Options are exercised and incur huge losses when both Options are not exercised.

  • Sell Underlying Stock or Future
  • Buy ATM Call Option

Breakeven Point Strike price of purchased call + net premium paid
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 (Bull Call Spread Vs Protective Call (Synthetic Long Put))

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

The trade will result in a loss if the price of the underlying decreases at expiration. The maximum loss is limited to net premium paid.

Max Loss = Net Premium Paid

Max Loss happens when the strike price of Call is less than or equal to price of the underlying.

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

Limited To The Difference Between Two Strike Prices Minus Net Premium

Maximum profit happens when the price of the underlying rises above strike price of two Calls. The profit is limited to the difference between two strike prices minus net premium paid.

Max Profit = (Strike Price of Call 1 - Strike Price of Call 2) - 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

Both options exercised

Underlying goes down and Option not exercised

Maximum Loss Scenario

Both options unexercised

Underlying goes down and Option exercised

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

  Bull Call Spread Protective Call (Synthetic Long Put)
Advantages

Instead of straightaway buying a Call Option, this strategy allows you to reduce cost and risk of your investments.

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

Disadvantage

Profit potential is limited.

Premium paid for Call Option may eat into your profits.

Simillar Strategies Collar, Bull Put Spread Long Put