This strategy is implemented by buying 1 Put Option i.e. a single position, when the person is bearish on the market and expects the market to move downwards in the near future.
Risk: The maximum loss will be the premium amount paid.<
This strategy is simply the reversal of the Synthetic Call Strategy. This strategy is implemented when a trader is bearish on the market and expects to go down. Trader will short underlying stock in the cash market and buy either an ATM Call Option or OTM Call Option. The Call Option is bought to protect / hedge the upside risk on the short position. The ..
A long put option strategy works well when you're expecting the underlying asset to sharply decline or be volatile in near future.
This strategy is implemented when a trader is bearish on the market and expects to go down.
Action
Buy Put Option
Buy 1 ATM Call
Breakeven Point
Strike Price of Long Put - Premium Paid
Sale Price of Underlying + Premium Paid
LONG PUT Vs PROTECTIVE CALL - Risk & Reward
LONG PUT
PROTECTIVE CALL
Maximum Profit Scenario
Profit = Strike Price of Long Put - Premium Paid
Sale Price of Underlying - Price of Underlying - Premium Paid
Maximum Loss Scenario
Max Loss = Premium Paid + Commissions Paid
Premium Paid + Call Strike Price - Sale Price of Underlying + Commissions Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
LONG PUT Vs PROTECTIVE CALL - Strategy Pros & Cons
LONG PUT
PROTECTIVE CALL
Similar Strategies
Protective Call, Short Put
Put Backspread, Long Put
Disadvantage
• 100% loss if strike price, expiration dates or underlying stocks are badly chosen. • Time decay.
• Profitable when market moves as expected. • Not good for beginners.
Advantages
• Limited risk to the premium paid. • Less capital investment and more profit. • Unlimited profit potential with limited risk.
• Limited risk if the market moves in opposite direction as expected. • Allows you to keep open a profitable position to make further profits. • Unlimited profit potential.
