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Long Put Vs Synthetic Call Options Trading Strategy Comparison

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

Long Put Vs Synthetic Call

  Long Put Synthetic Call
Long Put Logo Synthetic Call Logo
About Strategy A Long Put strategy is a basic strategy with the Bearish market view. Long Put is the opposite of Long Call. Here you are trying to take a position to benefit from the fall in the price of the underlying asset. The risk is limited to premium while rewards are unlimited. Long put strategy is similar to short selling a stock. This strategy has many advantages over short selling. This includes the maximum risk is the premium paid and lower investment. The challenge with this strategy is that options have an expiry, unlike stocks which you can hold as long as you want. Let's assume you are bearish on NIFTY and expects its price to fall. You can deploy a Long Put strategy by buying an ATM PUT Option of NIFTY. If the price of NIFTY share... 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 Bearish Bullish
Strategy Level Beginners Beginners
Options Type Put Call + Underlying
Number of Positions 1 2
Risk Profile Limited Limited
Reward Profile Unlimited Unlimited
Breakeven Point Strike Price of Long Put - Premium Paid Underlying Price + Put Premium

When and how to use Long Put and Synthetic Call?

  Long Put Synthetic Call
When to use?

A long put option strategy works well when you're expecting the underlying asset to sharply decline or be volatile in near future.

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 Bearish

When you are expecting a drop in the price of the underlying and rise in the volatility.

Bullish
Action
  • Buy Put Option

Let's assume you're Bearish on Nifty currently trading at 10,400. You expect it to fall to 10,000 level. You buy a Put option with a strike price 10,000. If the Nifty goes below 10,000, you will make a profit on exercising the option. In case the Nifty rises contrary to expectation, you will incur a maximum loss of the premium.

  • 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 of Long Put - Premium Paid

The breakeven is achieved when the strike price of the Put Option is equal to the premium paid.

Underlying Price + Put Premium

Compare Risks and Rewards (Long Put Vs Synthetic Call)

  Long Put Synthetic Call
Risks Limited

The risk for this strategy is limited to the premium paid for the Put Option. Maximum loss will happen when price of underlying is greater than strike price of the Put option.

Limited

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

Max Loss = Premium Paid

Rewards Unlimited

This strategy has the potential to earn unlimited profit. The profit will depend on how low the price of the underlying drops.

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 goes down and Option exercised

  • Maximum Profit = Unlimited
  • Maximum Profit Achieved When Price of Underlying = 0
  • Profit = Strike Price of Long Put - Premium Paid

Underlying goes up

Maximum Loss Scenario

Underlying goes up and Option not exercised

  • Max Loss = Premium Paid + Commissions Paid
  • Max Loss Occurs When Price of Underlying >= Strike Price of Long Put

Underlying goes down and option exercised

Pros & Cons or Long Put and Synthetic Call

  Long Put Synthetic Call
Advantages

Unlimited profit potential with risk only limited to loss of premium.

Provides protection to your long term holdings.

Disadvantage

You may incur 100% loss in premium if the underlying price rises.

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

Simillar Strategies Protective Call, Short Put, Long Straddle Married Put