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

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

Protective Call (Synthetic Long Put) Vs Long Call Butterfly

  Protective Call (Synthetic Long Put) Long Call Butterfly
Protective Call (Synthetic Long Put) Logo Long Call Butterfly Logo
About Strategy 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 Long Call Butterfly is a neutral strategy where very low volatility in the price of underlying is expected. The strategy is a combination of bull Spread and bear Spread. It involves Buy 1 ITM Call, Sell 2 ATM Calls and Buy 1 OTM Call. The strike prices of all Options should be at equal distance from the current price. Suppose Nifty is currently trading at 10400. You expect very little volatility in it. You can implement the Long Call Butterfly by buying 1 ITM Call Option at 10300, selling 2 ATM Nifty Call Options at 10400, buying 1 OTM Call Option at 10500. Ensure that strike prices of Options are at equidistance. Your loss will be limited to the net premium paid on 4 positions while profit will be limited to strike price of short calls.... Read More
Market View Bearish Neutral
Strategy Level Beginners Advance
Options Type Call + Underlying Call
Number of Positions 2 4
Risk Profile Limited Limited
Reward Profile Unlimited Limited
Breakeven Point Underlying Price - Call Premium

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

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

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.

This strategy should be used when you're expecting no volatility in the price of the underlying.

Market View Bearish

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

Neutral

Neutral on the underlying asset and bearish on the volatility.

Action
  • Sell Underlying Stock or Future
  • Buy ATM Call Option

  • Sell 2 ATM Call
  • Buy 1 ITM Call
  • Buy 1 OTM Call

Breakeven 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.


Upper Breakeven = Higher Strike Price - Net Premium

Lower Breakeven = Lower Strike Price + Net Premium

Compare Risks and Rewards (Protective Call (Synthetic Long Put) Vs Long Call Butterfly)

  Protective Call (Synthetic Long Put) Long Call Butterfly
Risks 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

Limited

Risk in the Long Call Butterfly options strategy is limited to the net premium paid.

Rewards 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

Limited

Rewards in the Long Call Butterfly options strategy is limited to the adjacent strikes minus net premium debit.

Maximum Profit Scenario

Underlying goes down and Option not exercised

Only ITM Call exercised

Maximum Loss Scenario

Underlying goes down and Option exercised

All options exercised or all options not exercised.

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

  Protective Call (Synthetic Long Put) Long Call Butterfly
Advantages

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

Profit earning strategy with limited risk in a less volatile market.

Disadvantage

Premium paid for Call Option may eat into your profits.

Premiums and brokerage paid on multiple position may eat your profits.

Simillar Strategies Long Put
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