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Synthetic Call Vs Bull Call Spread Options Trading Strategy Comparison

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

Synthetic Call Vs Bull Call Spread

  Synthetic Call Bull Call Spread
Synthetic Call Logo Bull 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 Bull Call Spread (or Bull Call Debit Spread) strategy is meant for investors who are moderately bullish of the market and are expecting mild rise in the price of underlying. The strategy involves taking two positions of buying a Call Option and selling of a Call Option. The risk and reward in this strategy is limited. A Bull Call Spread strategy involves Buy ITM Call Option and Sell OTM Call Option.For example, if you are of the view that NIFTY will rise moderately in near future then you can Buy NIFTY Call Option at ITM and Sell Nifty Call Option at OTM. You will earn massively when both of your Options are exercised and incur huge losses when both Options are not exercised.
Market View Bullish Bullish
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 purchased call + net premium paid

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

  Synthetic Call Bull 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.

A Bull Call Spread strategy works well when you're Bullish of the market but expect the underlying to gain mildly in near future.

Market View Bullish
Bullish

When you are expecting a moderate rise in the price of the underlying.

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 Call Option
  • Sell OTM Call Option

A Bull Call Spread strategy involves Buy ITM Call Option + Sell OTM Call Option.

For example, if you are of the view that Nifty will rise moderately in near future then you can Buy NIFTY Call Option at ITM and Sell NIFTY 50 Call Option at OTM. You will earn massively when both of your Options are exercised and incur huge losses when both Options are not exercised.

Breakeven Point Underlying Price + Put Premium
Strike price of purchased call + net premium paid

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

  Synthetic Call Bull Call Spread
Risks Limited

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

Max Loss = Premium Paid

Limited

The trade will result in a loss if the price of the underlying decreases at expiration. The maximum loss is limited to net premium paid.

Max Loss = Net Premium Paid

Max Loss happens when the strike price of Call is less than or equal to price of the underlying.

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

Limited To The Difference Between Two Strike Prices Minus Net Premium

Maximum profit happens when the price of the underlying rises above strike price of two Calls. The profit is limited to the difference between two strike prices minus net premium paid.

Max Profit = (Strike Price of Call 1 - Strike Price of Call 2) - Net Premium Paid

Maximum Profit Scenario

Underlying goes up

Both options exercised

Maximum Loss Scenario

Underlying goes down and option exercised

Both options unexercised

Pros & Cons or Synthetic Call and Bull Call Spread

  Synthetic Call Bull Call Spread
Advantages

Provides protection to your long term holdings.

Instead of straightaway buying a Call Option, this strategy allows you to reduce cost and risk of your investments.

Disadvantage

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

Profit potential is limited.

Simillar Strategies Married Put Collar, Bull Put Spread