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

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

Synthetic Call Vs Long Strangle (Buy Strangle)

  Synthetic Call Long Strangle (Buy Strangle)
Synthetic Call Logo Long Strangle (Buy Strangle) 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 Strangle (or Buy Strangle or Option Strangle) is a neutral strategy wherein Slightly OTM Put Options and Slightly OTM Call are bought simultaneously with same underlying asset and expiry date. This strategy can be used when the trader expects that the underlying stock will experience significant volatility in the near term. It is a limited risk and unlimited reward strategy. The maximum loss is the net premium paid while maximum profit is achieved when the underlying moves either significantly upwards or downwards at expiration. The usual Long Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY Spot Price): Options Strangle Orders OrdersNIFTY Strike Price Buy 1 Slightly OTM PutN... 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 two break-even points

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

  Synthetic Call Long Strangle (Buy Strangle)
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.

A Long Strangle is meant for special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.

Market View Bullish
Neutral

When you are unsure of the direction of the underlying but expecting high volatility in it.

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 Call Option
  • Buy OTM Put Option

Suppose Nifty is currently at 10400 and you expect the price to move sharply but are unsure about the direction. In such a scenario, you can execute long strangle strategy by buying Nifty at 10600 and at 10800. The net premium paid will be your maximum loss while the profit will depend on how high or low the index moves.

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

A Options Strangle strategy has two break-even points.

Lower Breakeven Point = Strike Price of Put - Net Premium

Upper Breakeven Point = Strike Price of Call + Net Premium

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

  Synthetic Call Long Strangle (Buy Strangle)
Risks Limited

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

Max Loss = Premium Paid

Limited

Max Loss = Net Premium Paid

The maximum loss is limited to the net premium paid in the long strangle strategy. It occurs when the price of the underlying is trading between the strike price of Options.

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

Maximum profit is achieved when the underlying moves significantly up and down at expiration.

Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid

Or

Profit = Strike Price of Long Put - Price of Underlying - Net Premium Paid

Maximum Profit Scenario

Underlying goes up

One Option exercised

Maximum Loss Scenario

Underlying goes down and option exercised

Both Option not exercised

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

  Synthetic Call Long Strangle (Buy Strangle)
Advantages

Provides protection to your long term holdings.

Disadvantage

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

The strategy requires significant price movements in the underlying to gain profits.

Simillar Strategies Married Put Long Straddle, Short Strangle