Long Put Vs Synthetic Call Options Trading Strategy Comparison

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.

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

• 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.

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

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.

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

Max Loss = Premium Paid

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

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

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

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

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

Provides protection to your long term holdings.

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.