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

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

Collar Vs Protective Call (Synthetic Long Put)

  Collar Protective Call (Synthetic Long Put)
Collar Logo Protective Call (Synthetic Long Put) Logo
About Strategy A Collar is similar to Covered Call but involves another position of buying a Put Option to cover the fall in the price of the underlying. It involves buying an ATM Put Option & selling an OTM Call Option of the underlying asset. It is a low risk strategy since the Put Option minimizes the downside risk. However, the rewards are also limited and is perfect for conservatively Bullish market view. Suppose you are holding shares of SBI currently trading at Rs 250. You can deploy a collar strategy by selling a Call Option of strike price Rs 300 while at the same time purchasing a Rs 200 strike price Put option. If the price rises to Rs 300, your benefit from increase in value of your holdings and you will lose net premiums. If the price falls... 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 Call + Put + Underlying Call + Underlying
Number of Positions 3 2
Risk Profile Limited Limited
Reward Profile Limited Unlimited
Breakeven Point Price of Features - Call Premium + Put Premium Underlying Price - Call Premium

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

  Collar Protective Call (Synthetic Long Put)
When to use?

The Collar strategy is perfect if you're Bullish for the underlying you're holding but are concerned with risk and want to protect your losses.

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 of the view that the price of the underlying will move up but also want to protect the downside.

Bearish

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

Action
  • Buy Underlying
  • Buy 1 ATM Put Option
  • Sell 1 OTM Call Option

  • Sell Underlying Stock or Future
  • Buy ATM Call Option

Breakeven Point Price of Features - Call Premium + Put 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 (Collar Vs Protective Call (Synthetic Long Put))

  Collar Protective Call (Synthetic Long Put)
Risks Limited

You will incur maximum losses when price of the underlying is less than the strike price of the Put Option.

Max Loss = Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received

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

You will incur maximum profit when price of underlying is greater than the strike price of call option.

Max Profit = Strike Price of Short Call - Purchase Price of Underlying + 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

Underlying goes up and Call option exercised

Underlying goes down and Option not exercised

Maximum Loss Scenario

Underlying goes down and Put option exercised

Underlying goes down and Option exercised

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

  Collar Protective Call (Synthetic Long Put)
Advantages

It protects the losses on underlying asset.

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 Covered Put Bull, Call Spread, Bull Put Spread Long Put







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