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Synthetic Call Vs Bull Put Spread Options Trading Strategy Comparison

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

Synthetic Call Vs Bull Put Spread

  Synthetic Call Bull Put Spread
Synthetic Call Logo Bull 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. A Bull Put Spread (or Bull Put Credit Spread) strategy is a Bullish strategy to be used when you're expecting the price of the underlying instrument to mildly rise or be less volatile. The strategy involves buying a Put Option and selling a Put Option at different strike prices. The risk and reward for this strategy is limited. A Bull Put Strategy involves Buy OTM Put Option and Sell ITM Put Option. For example, If you are of the view that the price of Reliance Shares will moderately gain or drop its volatility in near future. If Reliance is currently trading at Rs 600 then you will buy an OTM Put Option at Rs 700 and a sell an ITM Put Option at Rs 550. You will make a profit when, at expiry, Reliance closes at Rs 700 level and incur losse... Read More
Market View Bullish Bullish
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 short put - net premium paid

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

  Synthetic Call Bull 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.

This strategy works well when you're of the view that the price of a particular underlying will rise, move sideways, or marginally fall.

Market View Bullish
Bullish
When you are expecting a moderate rise in the price of the underlying or less volatility.
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 Put Option
  • Sell ITM Put Option

A Bull Put Strategy involves Buy OTM Put Option + Sell ITM Put Option.

For example, If you are of the view that the price of Reliance Shares will moderately gain or drop its volatility in near future. If Reliance is currently trading at 600 then you will buy a OTM PUT OPTION at 700 and a sell a ITM PUT OPTION at 550. You will make a profit when at expiry Reliance closes at 700 level and incur losses if the prices fall down below the current price.

Breakeven Point Underlying Price + Put Premium
Strike price of short put - net premium paid

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

  Synthetic Call Bull Put Spread
Risks Limited

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

Max Loss = Premium Paid

Limited

Maximum loss occurs when the stock price moves below the lower strike price on expiration date.

Max Loss = (Strike Price Put 1 - Strike Price of Put 2) - Net Premium Received

Max Loss Occurs When Price of Underlying <= Strike Price of Long Put

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

Maximum profit happens when the price of the underlying moves above the strike price of Short Put on expiration date.

Max Profit = Net Premium Received

Maximum Profit Scenario

Underlying goes up

Both options unexercised

Maximum Loss Scenario

Underlying goes down and option exercised

Both options exercised

Pros & Cons or Synthetic Call and Bull Put Spread

  Synthetic Call Bull Put Spread
Advantages

Provides protection to your long term holdings.

Allows you to benefit from time decay in profit situations. Helps you profit from 3 scenarios: rise, sideway movements and marginal fall of the underlying.

Disadvantage

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

Limited profit. Time decay may go against you in loss situations.

Simillar Strategies Married Put Bull Call Spread, Bear Put Spread, Collar







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