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Synthetic Call Vs Bear Call Spread Options Trading Strategy Comparison

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

Synthetic Call Vs Bear Call Spread

  Synthetic Call Bear Call Spread
Synthetic Call Logo Bear Call Spread Logo
About Strategy 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. A Bear Call Spread strategy involves buying a Call Option while simultaneously selling a Call Option of lower strike price on same underlying asset and expiry date. You receive a premium for selling a Call Option and pay a premium for buying a Call Option. So your cost of investment is much lower. The strategy is less risky with the reward limited to the difference in premium received and paid. This strategy is used when the trader believes that the price of underlying asset will go down moderately. This strategy is also known as the bear call credit spread as a net credit is received upon entering the trade. The risk and reward both are limited in the strategy. How to use the bear call spread options strategy? The bear call spr... Read More
Market View Bullish Bearish
Strategy Level Beginners Beginners
Options Type Call + Underlying Call
Number of Positions 2 2
Risk Profile Limited Limited
Reward Profile Unlimited Limited
Breakeven Point Underlying Price + Put Premium Strike Price of Short Call + Net Premium Received

When and how to use Synthetic Call and Bear Call Spread?

  Synthetic Call Bear Call Spread
When to use?

A Synthetic Call option strategy is when a trader is Bullish on long term holdings but is also concerned with the associated downside risk.

The bear call spread options strategy is used when you are bearish in market view. The strategy minimizes your risk in the event of prime movements going against your expectations.

Market View Bullish
Bearish

When you are expecting the price of the underlying to moderately go down.

Action
  • 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.

  • Buy OTM Call Option
  • Sell ITM Call Option

Let's assume you're Bearish on Nifty and are expecting mild drop in the price. You can deploy Bear Call strategy by selling a Call Option with lower strike and buying a Call Option with higher strike. You will receive a higher premium for selling a Call while pay lower premium for buying a Call. The net premium will be your profit. If the price of Nifty rises, your loss will be limited to difference between two strike prices minus net premium.

Breakeven Point Underlying Price + Put Premium
Strike Price of Short Call + Net Premium Received

The break even point is achieved when the price of the underlying is equal to strike price of the short Call plus net premium received.

Compare Risks and Rewards (Synthetic Call Vs Bear Call Spread)

  Synthetic Call Bear Call Spread
Risks Limited

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

Max Loss = Premium Paid

Limited

The maximum loss occurs when the price of the underlying moves above the strike price of long Call.

Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received

Rewards 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

Limited

The maximum profit the net premium received. It occurs when the price of the underlying is greater than strike price of short Call Option.

Max Profit = Net Premium Received - Commissions Paid

Maximum Profit Scenario

Underlying goes up

Underlying goes down and both options not exercised

Maximum Loss Scenario

Underlying goes down and option exercised

Underlying goes up and both options exercised

Pros & Cons or Synthetic Call and Bear Call Spread

  Synthetic Call Bear Call Spread
Advantages

Provides protection to your long term holdings.

It allows you to profit in a flat market scenario when you're expecting the underlying to mildly drop, be range bound or marginally rise.

Disadvantage

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

Limited profit potential.

Simillar Strategies Married Put Bear Put Spread, Bull Call Spread







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