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

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

Bull Put Spread Vs Protective Call (Synthetic Long Put)

  Bull Put Spread Protective Call (Synthetic Long Put)
Bull Put Spread Logo Protective Call (Synthetic Long Put) Logo
About Strategy A Bull Put Spread (or Bull Put Credit Spread) strategy is a Bullish strategy to be used when you're expecting the price of the underlying instrument to mildly rise or be less volatile. The strategy involves buying a Put Option and selling a Put Option at different strike prices. The risk and reward for this strategy is limited. A Bull Put Strategy involves Buy OTM Put Option and Sell ITM Put Option. For example, If you are of the view that the price of Reliance Shares will moderately gain or drop its volatility in near future. If Reliance is currently trading at Rs 600 then you will buy an OTM Put Option at Rs 700 and a sell an ITM Put Option at Rs 550. You will make a profit when, at expiry, Reliance closes at Rs 700 level and incur losse... 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 Bullish 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 short put - net premium paid Underlying Price - Call Premium

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

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

This strategy works well when you're of the view that the price of a particular underlying will rise, move sideways, or marginally fall.

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 or less volatility.
Bearish

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

Action
  • Buy OTM Put Option
  • Sell ITM Put Option

A Bull Put Strategy involves Buy OTM Put Option + Sell ITM Put Option.

For example, If you are of the view that the price of Reliance Shares will moderately gain or drop its volatility in near future. If Reliance is currently trading at 600 then you will buy a OTM PUT OPTION at 700 and a sell a ITM PUT OPTION at 550. You will make a profit when at expiry Reliance closes at 700 level and incur losses if the prices fall down below the current price.

  • Sell Underlying Stock or Future
  • Buy ATM Call Option

Breakeven Point Strike price of short put - 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 Put Spread Vs Protective Call (Synthetic Long Put))

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

Maximum loss occurs when the stock price moves below the lower strike price on expiration date.

Max Loss = (Strike Price Put 1 - Strike Price of Put 2) - Net Premium Received

Max Loss Occurs When Price of Underlying <= Strike Price of Long Put

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

Maximum profit happens when the price of the underlying moves above the strike price of Short Put on expiration date.

Max Profit = Net Premium Received

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 unexercised

Underlying goes down and Option not exercised

Maximum Loss Scenario

Both options exercised

Underlying goes down and Option exercised

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

  Bull Put Spread Protective Call (Synthetic Long Put)
Advantages

Allows you to benefit from time decay in profit situations. Helps you profit from 3 scenarios: rise, sideway movements and marginal fall of the underlying.

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

Disadvantage

Limited profit. Time decay may go against you in loss situations.

Premium paid for Call Option may eat into your profits.

Simillar Strategies Bull Call Spread, Bear Put Spread, Collar Long Put