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Synthetic Call Vs Protective Call (Synthetic Long Put) Options Trading Strategy Comparison

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

Synthetic Call Vs Protective Call (Synthetic Long Put)

  Synthetic Call Protective Call (Synthetic Long Put)
Synthetic Call Logo Protective Call (Synthetic Long 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 Protective Call strategy is a hedging strategy. In this strategy, a trader shorts position in the underlying asset (sell shares or sell futures) and buys an ATM Call Option to cover against the rise in the price of the underlying. This strategy is opposite of the Synthetic Call strategy. It is used when the trader is bearish on the underlying asset and would like to protect 'rise in the price' of the underlying asset. The risk is limited in the strategy while the rewards are unlimited. How to use a Protective Call trading strategy? The usual Protective Call Strategy looks like as below for State Bank of India (SBI) Shares which are currently traded at Rs 275 (SBI Spot Price): Protective Call Orders - SBI Stock Orde... Read More
Market View Bullish Bearish
Strategy Level Beginners Beginners
Options Type Call + Underlying Call + Underlying
Number of Positions 2 2
Risk Profile Limited Limited
Reward Profile Unlimited Unlimited
Breakeven Point Underlying Price + Put Premium Underlying Price - Call Premium

When and how to use Synthetic Call and Protective Call (Synthetic Long Put)?

  Synthetic Call Protective Call (Synthetic Long 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 Protective Call option strategy is used when you are bearish in market view and want to short shares to benefit from it. The strategy minimizes your risk in the event of prime movements going against your expectations.

Market View Bullish
Bearish

When you are bearish on the underlying but want to protect the upside.

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 Stock or Future
  • Buy ATM Call Option

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

When the price of the underlying is equal to the total of the sale price of the underlying and premium paid.

Compare Risks and Rewards (Synthetic Call Vs Protective Call (Synthetic Long Put))

  Synthetic Call Protective Call (Synthetic Long Put)
Risks Limited

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

Max Loss = Premium Paid

Limited

The maximum loss is limited to the premium paid for buying the Call option. It occurs when the price of the underlying is less than the strike price of Call Option.

Maximum Loss = Call Strike Price - Sale Price of Underlying + 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

The maximum profit is unlimited in this strategy. The profit is dependent on the sale price of the underlying.

Profit = Sale Price of Underlying - Price of Underlying - Premium Paid

Maximum Profit Scenario

Underlying goes up

Underlying goes down and Option not exercised

Maximum Loss Scenario

Underlying goes down and option exercised

Underlying goes down and Option exercised

Pros & Cons or Synthetic Call and Protective Call (Synthetic Long Put)

  Synthetic Call Protective Call (Synthetic Long Put)
Advantages

Provides protection to your long term holdings.

Minimizes the risk when entering into a short position while keeping the profit potential limited.

Disadvantage

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

Premium paid for Call Option may eat into your profits.

Simillar Strategies Married Put Long Put







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