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Synthetic Call Vs Collar Options Trading Strategy Comparison

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

Synthetic Call Vs Collar

  Synthetic Call Collar
Synthetic Call Logo Collar 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 Collar is similar to Covered Call but involves another position of buying a Put Option to cover the fall in the price of the underlying. It involves buying an ATM Put Option & selling an OTM Call Option of the underlying asset. It is a low risk strategy since the Put Option minimizes the downside risk. However, the rewards are also limited and is perfect for conservatively Bullish market view. Suppose you are holding shares of SBI currently trading at Rs 250. You can deploy a collar strategy by selling a Call Option of strike price Rs 300 while at the same time purchasing a Rs 200 strike price Put option. If the price rises to Rs 300, your benefit from increase in value of your holdings and you will lose net premiums. If the price falls... Read More
Market View Bullish Bullish
Strategy Level Beginners Advance
Options Type Call + Underlying Call + Put + Underlying
Number of Positions 2 3
Risk Profile Limited Limited
Reward Profile Unlimited Limited
Breakeven Point Underlying Price + Put Premium Price of Features - Call Premium + Put Premium

When and how to use Synthetic Call and Collar?

  Synthetic Call Collar
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 Collar strategy is perfect if you're Bullish for the underlying you're holding but are concerned with risk and want to protect your losses.

Market View Bullish
Bullish

When you are of the view that the price of the underlying will move up but also want to protect the downside.

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 Underlying
  • Buy 1 ATM Put Option
  • Sell 1 OTM Call Option

Breakeven Point Underlying Price + Put Premium
Price of Features - Call Premium + Put Premium

Compare Risks and Rewards (Synthetic Call Vs Collar)

  Synthetic Call Collar
Risks Limited

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

Max Loss = Premium Paid

Limited

You will incur maximum losses when price of the underlying is less than the strike price of the Put Option.

Max Loss = Purchase Price of Underlying - Strike Price of Long Put - 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

You will incur maximum profit when price of underlying is greater than the strike price of call option.

Max Profit = Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received

Maximum Profit Scenario

Underlying goes up

Underlying goes up and Call option exercised

Maximum Loss Scenario

Underlying goes down and option exercised

Underlying goes down and Put option exercised

Pros & Cons or Synthetic Call and Collar

  Synthetic Call Collar
Advantages

Provides protection to your long term holdings.

It protects the losses on underlying asset.

Disadvantage

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

The profit is limited

Simillar Strategies Married Put Covered Put Bull, Call Spread, Bull Put Spread