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Short Put Vs Synthetic Call Options Trading Strategy Comparison

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

Short Put Vs Synthetic Call

  Short Put Synthetic Call
Short Put Logo Synthetic Call Logo
About Strategy 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. 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 Put Call + Underlying
Number of Positions 1 2
Risk Profile Unlimited Limited
Reward Profile Limited Unlimited
Breakeven Point Strike Price - Premium Underlying Price + Put Premium

When and how to use Short Put and Synthetic Call?

  Short Put Synthetic Call
When to use?

Short Put works well when you're Bullish that the price of the underlying will not fall beyond a certain level.

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 are expecting the price or volatility of the underlying to increase marginally.

Bullish
Action
  • 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.

  • 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
Underlying Price + Put Premium

Compare Risks and Rewards (Short Put Vs Synthetic Call)

  Short Put Synthetic Call
Risks 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.

Limited

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

Max Loss = Premium Paid

Rewards Limited

The profit is limited to premium received in your account when you sell the Put Option.

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 doesn't go down and options remain exercised.

Underlying goes up

Maximum Loss Scenario

Underlying goes down and options remain exercised.

Underlying goes down and option exercised

Pros & Cons or Short Put and Synthetic Call

  Short Put Synthetic Call
Advantages

It allows you benefit from time decay. And earn income in a rising or range bound market scenario.

Provides protection to your long term holdings.

Disadvantage

It is a high risk strategy and may cause huge losses if the price of the underlying falls steeply.

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

Simillar Strategies

Bull Put Spread, Covered Call, Short Straddle

Married Put