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Synthetic Call Vs Long Straddle (Buy Straddle) Options Trading Strategy Comparison

Compare Synthetic Call and Long Straddle (Buy Straddle) options trading strategies. Find similarities and differences between Synthetic Call and Long Straddle (Buy Straddle) strategies. Find the best options trading strategy for your trading needs.

Synthetic Call Vs Long Straddle (Buy Straddle)

  Synthetic Call Long Straddle (Buy Straddle)
Synthetic Call Logo Long Straddle (Buy Straddle) 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 Long Straddle (or Buy Straddle) is a neutral strategy. This strategy involves simultaneously buying a call and a put option of the same underlying asset, same strike price and same expire date. A Long Straddle strategy is used in case of highly volatile market scenarios wherein you expect a big movement in the price of the underlying but are not sure of the direction. Such scenarios arise when company declare results, budget, war-like situation etc. This is an unlimited profit and limited risk strategy. The profit earns in this strategy is unlimited. Higher volatility results in higher profits. The maximum loss is limited to the net premium paid. The max loss occurs when underlying asset price on expire remains at the strike price. ... Read More
Market View Bullish Neutral
Strategy Level Beginners Beginners
Options Type Call + Underlying Call + Put
Number of Positions 2 2
Risk Profile Limited Limited
Reward Profile Unlimited Unlimited
Breakeven Point Underlying Price + Put Premium 2 break-even points

When and how to use Synthetic Call and Long Straddle (Buy Straddle)?

  Synthetic Call Long Straddle (Buy Straddle)
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 strategy is perfect to use when there is market volatility expected due to results, elections, budget, policy change, war etc.

Market View Bullish
Neutral

When you are not sure on the direction the underlying would move but are expecting the rise in its 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 Call Option
  • Buy Put Option

Breakeven Point Underlying Price + Put Premium
2 break-even points

A straddle has two break-even points.

Lower Breakeven = Strike Price of Put - Net Premium

Upper breakeven = Strike Price of Call + Net Premium

Compare Risks and Rewards (Synthetic Call Vs Long Straddle (Buy Straddle))

  Synthetic Call Long Straddle (Buy Straddle)
Risks Limited

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

Max Loss = Premium Paid

Limited

The maximum loss for long straddle strategy is limited to the net premium paid. It happens the price of underlying is equal to strike price of options.

Maximum Loss = 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

Unlimited

There is unlimited profit opportunity in this strategy irrespective of the direction of the underlying. Profit occurs when the price of the underlying is greater than strike price of long Put or lesser than strike price of long Call.

Maximum Profit Scenario

Underlying goes up

Max profit is achieved when at one option is exercised.

Maximum Loss Scenario

Underlying goes down and option exercised

When both options are not exercised. This happens when underlying asset price on expire remains at the strike price.

Pros & Cons or Synthetic Call and Long Straddle (Buy Straddle)

  Synthetic Call Long Straddle (Buy Straddle)
Advantages

Provides protection to your long term holdings.

Earns you unlimited profit in a volatile market while minimizing the loss.

Disadvantage

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

The price change has to be bigger to make good profits.

Simillar Strategies Married Put Long Strangle, Short Straddle







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