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Synthetic Call Vs Long Call Butterfly Options Trading Strategy Comparison

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

Synthetic Call Vs Long Call Butterfly

  Synthetic Call Long Call Butterfly
Synthetic Call Logo Long Call Butterfly 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. Long Call Butterfly is a neutral strategy where very low volatility in the price of underlying is expected. The strategy is a combination of bull Spread and bear Spread. It involves Buy 1 ITM Call, Sell 2 ATM Calls and Buy 1 OTM Call. The strike prices of all Options should be at equal distance from the current price. Suppose Nifty is currently trading at 10400. You expect very little volatility in it. You can implement the Long Call Butterfly by buying 1 ITM Call Option at 10300, selling 2 ATM Nifty Call Options at 10400, buying 1 OTM Call Option at 10500. Ensure that strike prices of Options are at equidistance. Your loss will be limited to the net premium paid on 4 positions while profit will be limited to strike price of short calls.... Read More
Market View Bullish Neutral
Strategy Level Beginners Advance
Options Type Call + Underlying Call
Number of Positions 2 4
Risk Profile Limited Limited
Reward Profile Unlimited Limited
Breakeven Point Underlying Price + Put Premium

When and how to use Synthetic Call and Long Call Butterfly?

  Synthetic Call Long Call Butterfly
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 should be used when you're expecting no volatility in the price of the underlying.

Market View Bullish
Neutral

Neutral on the underlying asset and bearish on the 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.

  • Sell 2 ATM Call
  • Buy 1 ITM Call
  • Buy 1 OTM Call

Breakeven Point Underlying Price + Put Premium

Upper Breakeven = Higher Strike Price - Net Premium

Lower Breakeven = Lower Strike Price + Net Premium

Compare Risks and Rewards (Synthetic Call Vs Long Call Butterfly)

  Synthetic Call Long Call Butterfly
Risks Limited

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

Max Loss = Premium Paid

Limited

Risk in the Long Call Butterfly options strategy is limited to the 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

Rewards in the Long Call Butterfly options strategy is limited to the adjacent strikes minus net premium debit.

Maximum Profit Scenario

Underlying goes up

Only ITM Call exercised

Maximum Loss Scenario

Underlying goes down and option exercised

All options exercised or all options not exercised.

Pros & Cons or Synthetic Call and Long Call Butterfly

  Synthetic Call Long Call Butterfly
Advantages

Provides protection to your long term holdings.

Profit earning strategy with limited risk in a less volatile market.

Disadvantage

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

Premiums and brokerage paid on multiple position may eat your profits.

Simillar Strategies Married Put
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Long Call Butterfly Vs Covered Call
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Long Call Butterfly Vs Bear Call Spread
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Long Call Butterfly Vs Protective Call
Long Call Butterfly Vs Covered Put
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Long Call Butterfly Vs Short Straddle
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