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

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

Long Call Vs Protective Call (Synthetic Long Put)

  Long Call Protective Call (Synthetic Long Put)
Long Call Logo Protective Call (Synthetic Long Put) Logo
About Strategy A Long Call Option trading strategy is one of the basic strategies. In this strategy, a trader is Bullish in his market view and expects the market to rise in near future. The strategy involves taking a single position of buying a Call Option (either ITM, ATM or OTM). This strategy has limited risk (max loss is premium paid) and unlimited profit potential. When the trader goes long on call, the trader buys a Call Option and later sells it to earn profits if the price of the underlying asset goes up. When the trader buys a call, he pays the option premium in exchange for the right (but not the obligation) to buy share or index at a fixed price by a certain expiry date. This premium is the only amount at-the-risk for trader in case the mark... 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 Beginners Beginners
Options Type Call Call + Underlying
Number of Positions 1 2
Risk Profile Limited Limited
Reward Profile Unlimited Unlimited
Breakeven Point Strike Price + Premium Underlying Price - Call Premium

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

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

A long call Option strategy works well when you expect the underlying instrument to move positively in the recent future.

If you expect XYZ company to do well in near future then you can buy Call Options of the company. You will earn the profit if the price of the company shares closes above the Strike Price on the expiry date. However, if underlying shares don't do well and move downwards on expiry date you will incur losses (i.e. lose premium paid).

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're expecting a rise in the price of the underlying and increase in volatility.

Bearish

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

Action
  • Buy Call Option

A long call strategy involves buying a call option only. So if you expect Reliance to do well in near future then you can buy Call Options of Reliance. You will earn a profit if the price of Reliance shares closes above the Strike price on the expiry date. However, if Reliance shares don't move up within the expiry date you will incur losses.

  • Sell Underlying Stock or Future
  • Buy ATM Call Option

Breakeven Point Strike Price + Premium

The break-even point for Long Call strategy is the sum of the strike price and premium paid. Traders earn profits if the price of the underlying asset moves above the break-even point. Traders loose premium if the price of the underlying asset falls below the break-even point.

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 (Long Call Vs Protective Call (Synthetic Long Put))

  Long Call Protective Call (Synthetic Long Put)
Risks Limited

The risk is limited to the premium paid for the call option irrespective of the price of the underlying on the expiration date.

Max Loss = 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 Unlimited

There is no limit to maximum profit attainable in the long call option strategy. The trade gets profitable when price of the underlying is greater than strike price plus premium.

Profit = Price of Underlying - (Strike Price + 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 closes above the strike price on expiry.

Underlying goes down and Option not exercised

Maximum Loss Scenario

Underlying closes below the strike price on expiry.

Underlying goes down and Option exercised

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

  Long Call Protective Call (Synthetic Long Put)
Advantages

Buying a Call Option instead of the underlying allows you to gain more profits by investing less and limiting your losses to minimum.

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

Disadvantage

Call options have a limited lifespan. So, in case the price of your underlying stock is not higher than the strike price before the expiry date, the call option will expire worthlessly and you will lose the premium paid.

Premium paid for Call Option may eat into your profits.

Simillar Strategies Protective Put, Covered Put/Married Put, Bull Call Spread Long Put







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