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Synthetic Call Vs Bear Put Spread Options Trading Strategy Comparison

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

Synthetic Call Vs Bear Put Spread

  Synthetic Call Bear Put Spread
Synthetic Call Logo Bear Put 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. The Bear Put strategy involves selling a Put Option while simultaneously buying a Put option. Contrary to Bear Call Spread, here you pay the higher premium and receive the lower premium. So there is a net debit in premium. Your risk is capped at the difference in premiums while your profit will be limited to the difference in strike prices of Put Option minus net premiums. 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 put debit spread as a net debit is taken upon entering the trade. This strategy has a limited risk as well as limited rewards. How to use the bear put spread options strategy? The bear put spread strategy looks like... Read More
Market View Bullish Bearish
Strategy Level Beginners Advance
Options Type Call + Underlying Put
Number of Positions 2 2
Risk Profile Limited Limited
Reward Profile Unlimited Limited
Breakeven Point Underlying Price + Put Premium Strike Price of Long Put - Net Premium

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

  Synthetic Call Bear Put 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 drop.

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 ITM Put Option
  • Sell OTM Put Option

Breakeven Point Underlying Price + Put Premium
Strike Price of Long Put - Net Premium

The breakeven point is achieved when the price of the underlying is equal to strike price of long Put minus net premium.

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

  Synthetic Call Bear Put 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 is limited to net premium paid. It occurs when the price of the underlying is less than strike price of long Put..

Max Loss = Net Premium Paid.

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 is achieved when the strike price of short Put is greater than the price of the underlying..

Max Profit = Strike Price of Long Put - Strike Price of Short Put - Net Premium Paid.

Maximum Profit Scenario

Underlying goes up

Underlying goes down and both options exercised

Maximum Loss Scenario

Underlying goes down and option exercised

Underlying goes up and both options not exercised

Pros & Cons or Synthetic Call and Bear Put Spread

  Synthetic Call Bear Put Spread
Advantages

Provides protection to your long term holdings.

Risk is limited. It reduces the cost of investment.

Disadvantage

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

The profit is limited.

Simillar Strategies Married Put Bear Call Spread, Bull Call Spread