Long Call Vs Short Put Options Trading Strategy Comparison

Compare Long Call and Short Put options trading strategies. Find similarities and differences between Long Call and Short Put strategies. Find the best options trading strategy for your trading needs.

Long Call Vs Short Put

	Long Call	Short Put


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	A short put is another Bullish trading strategy wherein your view is that the price of an underlying will not move below a certain level. The strategy involves entering into a single position of selling a Put Option. It has low profit potential and is exposed to unlimited risk. A short put strategy involves selling a Put Option only. For example if you see that the shares of a Company A will not move below Rs 1000 then you sell the Put Option of that stock at Rs 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this trade. However, if the price of the underlying moves below 1000 then you will incur unlimited losses.
Market View	Bullish	Bullish
Strategy Level	Beginners	Beginners
Options Type	Call	Put
Number of Positions	1	1
Risk Profile	Limited	Unlimited
Reward Profile	Unlimited	Limited
Breakeven Point	Strike Price + Premium	Strike Price - Premium

When and how to use Long Call and Short Put?

	Long Call	Short 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).	Short Put works well when you're Bullish that the price of the underlying will not fall beyond a certain level.
Market View	Bullish When you're expecting a rise in the price of the underlying and increase in volatility.	Bullish When you are expecting the price or volatility of the underlying to increase marginally.
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 Put Option A short put strategy involves selling a Put Option only. So if you see that the shares of a Company A will not move below a 1000 then you sell the Put Option of that stock at 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this deal. However, if the price of the underlying moves below 1000 than you will incur losses.
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.	Strike Price - Premium

Compare Risks and Rewards (Long Call Vs Short Put)

	Long Call	Short 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	Unlimited There is no limit to losses incurred in the trade. The risk is when the price of the underlying falls, and the Put is exercised. You are then obliged to buy the underlying at the strike price.
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)	Limited The profit is limited to premium received in your account when you sell the Put Option.
Maximum Profit Scenario	Underlying closes above the strike price on expiry.	Underlying doesn't go down and options remain exercised.
Maximum Loss Scenario	Underlying closes below the strike price on expiry.	Underlying goes down and options remain exercised.

Pros & Cons or Long Call and Short Put

	Long Call	Short 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.	It allows you benefit from time decay. And earn income in a rising or range bound market scenario.
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.	It is a high risk strategy and may cause huge losses if the price of the underlying falls steeply.
Simillar Strategies	Protective Put, Covered Put/Married Put, Bull Call Spread	Bull Put Spread, Covered Call, Short Straddle

1 Comments

1. Justin Gilead

| Link|August 16, 2022 8:47:47 PMReply

You partially get it wrong! The max loss will be the equivalent of the call premium paid for a single call position, indeed ; for a synthetic call options, it will be likened to the call options premium that you actually haven't paid as the call position has just been replicated along with the help of a long put and a long underlying though. For instance, if you purchase an ITM put, in addition to the long underlying, then the overall cost will be quite high, but the max risk entailed in the position will be the equivalent of the cheap OTM call options (only time value) that stands on the other side and on the same strike. In short, you may pay more to risk less with a synthetic options ; it definitely does the trick for hedging purposes then.

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