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Synthetic Call Vs Short Straddle (Sell Straddle or Naked Straddle) Options Trading Strategy Comparison

Compare Synthetic Call and Short Straddle (Sell Straddle or Naked Straddle) options trading strategies. Find similarities and differences between Synthetic Call and Short Straddle (Sell Straddle or Naked Straddle) strategies. Find the best options trading strategy for your trading needs.

Synthetic Call Vs Short Straddle (Sell Straddle or Naked Straddle)

  Synthetic Call Short Straddle (Sell Straddle or Naked Straddle)
Synthetic Call Logo Short Straddle (Sell Straddle or Naked 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 Short Straddle (or Sell Straddle or naked Straddle) is a neutral options strategy. This strategy involves simultaneously selling a call and a put option of the same underlying asset, same strike price and same expire date. A Short Straddle strategy is used in case of little volatility market scenarios wherein you expect none or very little movement in the price of the underlying. Such scenarios arise when there is no major news expected until expire. This is a limited profit and unlimited loss strategy. The maximum profit earned when, on expire date, the underlying asset is trading at the strike price at which the options are sold. The maximum loss is unlimited and occurs when underlying asset price moves sharply in upward or down... Read More
Market View Bullish Neutral
Strategy Level Beginners Advance
Options Type Call + Underlying Call + Put
Number of Positions 2 2
Risk Profile Limited Unlimited
Reward Profile Unlimited Limited
Breakeven Point Underlying Price + Put Premium 2 Breakeven Points

When and how to use Synthetic Call and Short Straddle (Sell Straddle or Naked Straddle)?

  Synthetic Call Short Straddle (Sell Straddle or Naked 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.

This strategy is to be used when you expect a flat market in the coming days with very less movement in the prices of underlying asset.

Market View Bullish
Neutral

When trader don't expect much movement in its price in 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.

  • Sell Call Option
  • Sell Put Option

Breakeven Point Underlying Price + Put Premium
2 Breakeven Points

There are 2 break even points in this strategy. The upper break even is hit when the underlying price is equal to the total of strike price of short call and net premium paid. The lower break even is hit when the underlying price is equal to the difference between strike price of short Put and net premium paid.

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 Short Straddle (Sell Straddle or Naked Straddle))

  Synthetic Call Short Straddle (Sell Straddle or Naked Straddle)
Risks Limited

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

Max Loss = Premium Paid

Unlimited

There is a possibility of unlimited loss in the short straddle strategy. The loss occurs when the price of the underlying significantly moves upwards and downwards.

Loss = Price of Underlying - Strike Price of Short Call - Net Premium Received

Or

Loss= Strike Price of Short Put - Price of Underlying - Net Premium Received

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

Maximum profit is limited to the net premium received. The profit is achieved when the price of the underlying is equal to either strike price of short Call or Put.

Maximum Profit Scenario

Underlying goes up

Both Option not exercised

Maximum Loss Scenario

Underlying goes down and option exercised

One Option exercised

Pros & Cons or Synthetic Call and Short Straddle (Sell Straddle or Naked Straddle)

  Synthetic Call Short Straddle (Sell Straddle or Naked Straddle)
Advantages

Provides protection to your long term holdings.

It allows you to benefit from double time decay and earn profit in a less volatile scenario.

Disadvantage

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

Unlimited losses if the price of the underlying move significantly in either direction.

Simillar Strategies Married Put Short Strangle, Long Straddle







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