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Synthetic Call Vs Covered Put (Married Put) Options Trading Strategy Comparison

Compare Synthetic Call and Covered Put (Married Put) options trading strategies. Find similarities and differences between Synthetic Call and Covered Put (Married Put) strategies. Find the best options trading strategy for your trading needs.

Synthetic Call Vs Covered Put (Married Put)

  Synthetic Call Covered Put (Married Put)
Synthetic Call Logo Covered Put (Married Put) 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 Covered Put is a neutral to bearish market view and expects the price of the underlying to remain range bound or go down. In this strategy, while shorting shares (or futures), you also sell a Put Option (ATM or slight OTM) to cover for any unexpected rise in the price of the shares. This strategy is also known as Married Put strategy or writing covered put strategy. The risk is unlimited while the reward is limited in this strategy. How to use a Protective Call trading strategy? The usual Covered Put looks like as below for State Bank of India (SBI) Shares which are currently traded at Rs 275 (SBI Spot Price): Covered Put Orders - SBI Stock OrdersSBI Strike Price Sell Underlying SharesSell 100 SBI Shares ... Read More
Market View Bullish Bearish
Strategy Level Beginners Advance
Options Type Call + Underlying Put + Underlying
Number of Positions 2 2
Risk Profile Limited Unlimited
Reward Profile Unlimited Limited
Breakeven Point Underlying Price + Put Premium Futures Price + Premium Received

When and how to use Synthetic Call and Covered Put (Married Put)?

  Synthetic Call Covered Put (Married Put)
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 Covered Put works well when the market is moderately Bearish

Market View Bullish
Bearish

When you are expecting a moderate drop in the price and volatility 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.

Sell Underlying Sell OTM Put Option

Suppose SBI is trading at 300. You believe that the price will remain range bound or mildly drop. The covered put allows you to benefit from this market view. In this strategy, you sell the underlying and also sell a Put Option of the underlying and receive the premium. You will benefit from drop in prices of SBI, the Put Option will minimize your risks. If there is no change in price then you keep the premium received as profit.

Breakeven Point Underlying Price + Put Premium
Futures Price + Premium Received

The break-even point is achieved when the price of the underlying is equal to the total of the sale price of underlying and premium received.

Compare Risks and Rewards (Synthetic Call Vs Covered Put (Married Put))

  Synthetic Call Covered Put (Married Put)
Risks Limited

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

Max Loss = Premium Paid

Unlimited

The Maximum Loss is Unlimited as the price of the underlying can theoretically go up to any extent.

Loss = Price of Underlying - Sale Price of Underlying - 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 is limited to the premiums received. The profit happens when the price of the underlying moves above strike price of Short Put.

Maximum Profit Scenario

Underlying goes up

Underlying goes down and Options exercised

Maximum Loss Scenario

Underlying goes down and option exercised

Underlying goes up and Options exercised

Pros & Cons or Synthetic Call and Covered Put (Married Put)

  Synthetic Call Covered Put (Married Put)
Advantages

Provides protection to your long term holdings.

Its an income generation strategy in a neutral or Bearish market. Also allows you to benefit from fall in prices, range bound movements or mild increase.

Disadvantage

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

The risks can be huge if the prices increases steeply.

Simillar Strategies Married Put Bear Put Spread, Bear Call Spread







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