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Long Call Vs Synthetic Call Options Trading Strategy Comparison

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

Long Call Vs Synthetic Call

  Long Call Synthetic Call
Long Call Logo Synthetic Call 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 A Synthetic Call strategy is used by traders who are currently holding the underlying asset and are Bullish on it for the long term. But he is also worried about the downside risks in near future. This strategy offers unlimited reward potential with limited risk. The strategy is used by buying PUT OPTION of the underlying you are holding for long. If the price of the underlying rises then you make profits on holdings. If it falls then your loss will be limited to the premium paid for PUT OPTION.
Market View Bullish Bullish
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 + Put Premium

When and how to use Long Call and Synthetic Call?

  Long Call Synthetic Call
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).

A Synthetic Call option strategy is when a trader is Bullish on long term holdings but is also concerned with the associated downside risk.

Market View Bullish

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

Bullish
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.

  • Buy Underlying
  • Buy Put Option

The strategy is used by buying PUT OPTION of the underlying you're holding for long. If the price of the underlying rises then you make profits on holdings. If it falls then your loss will be limited to the premium paid for PUT 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 + Put Premium

Compare Risks and Rewards (Long Call Vs Synthetic Call)

  Long Call Synthetic Call
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

Maximum loss happens when price of the underlying moves above strike price of Put.

Max Loss = 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

Maximum profit is realized when price of underlying moves above purchase price of underlying plus premium paid for Put Option.

Profit = (Current Price of Underlying - Purchase Price of Underlying) - Premium Paid

Maximum Profit Scenario

Underlying closes above the strike price on expiry.

Underlying goes up

Maximum Loss Scenario

Underlying closes below the strike price on expiry.

Underlying goes down and option exercised

Pros & Cons or Long Call and Synthetic Call

  Long Call Synthetic Call
Advantages

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

Provides protection to your long term holdings.

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.

You can incur losses if underlying goes down and the option is exercised.

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







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