Short Put Vs Synthetic Call Options Trading Strategy Comparison

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.

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

• 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.

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.

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

Max Loss = Premium Paid

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

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 doesn't go down and options remain exercised.

Underlying goes up

Underlying goes down and options remain exercised.

Underlying goes down and option exercised

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.

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.

Bull Put Spread, Covered Call, Short Straddle