Synthetic Call Vs Short Call Butterfly Options Trading Strategy Comparison

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

Synthetic Call Vs Short Call Butterfly

	Synthetic Call	Short Call Butterfly


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.	Short Call Butterfly (or Short Butterfly) is a neutral strategy similar to Long Butterfly but bullish on the volatility. This strategy is a limited risk and limited profit strategy. This strategy consists of two long calls at a middle strike (or ATM) and one short call each at a lower and upper strike. All the options must have the same expiration date. Also, the upper and lower strikes (or wings) must both be equidistant from the middle strike (or body). In simple terms, it involves Sell 1 ITM Call, Buy 2 ATM Calls and Sell 1 OTM Call. The strike prices of all Options should be at equal distance from the current price as shown in the example below. The usual Short Butterfly strategy looks like as below for NIFTY current index value as 1... 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	2 Break-even Points

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

	Synthetic Call	Short 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 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 about the direction in the movement in the price of the underlying but are expecting high volatility in it in the near future.
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 2 ATM Call Sell 1 ITM Call Sell 1 OTM Call
Breakeven Point	Underlying Price + Put Premium	2 Break-even Points There are 2 break even points in this strategy. Lower Break-even = Lower Strike Price + Net Premium Upper Break-even = Higher Strike Price - Net Premium

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

	Synthetic Call	Short Call Butterfly
Risks	Limited Maximum loss happens when price of the underlying moves above strike price of Put. Max Loss = Premium Paid	Limited The maximum risk is limited. Maximum Risk = Higher strike price- Lower Strike Price - Net Premium
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 profit is limited to the net premium received. This happens when the price of the underlying is trading beyond the range of strike prices at expiration date.
Maximum Profit Scenario	Underlying goes up	All Options exercised or not exercised
Maximum Loss Scenario	Underlying goes down and option exercised	Only ITM Call exercised

Pros & Cons or Synthetic Call and Short Call Butterfly

	Synthetic Call	Short Call Butterfly
Advantages	Provides protection to your long term holdings.	This strategy requires no investment as net premium is positive and received. It allows you to benefit from high volatile market scenarios without the need to speculate on the direction of price movement.
Disadvantage	You can incur losses if underlying goes down and the option is exercised.	Profitability depends on significant movement in the price of the underlying.
Simillar Strategies	Married Put	Long Straddle, Long Call Butterfly

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