Compare Strategies
SYNTHETIC LONG CALL | COVERED CALL | |
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About Strategy |
Synthetic Long Call Option StrategyA trader is bullish in nature for short term, but also fearful about the downside risk associated with it. Here, a trader wants to hold an underlying asset either in physical form like in case of commodities or demat (electronic) form in case of stocks. But he is always exposed to downside risk and in order to mitigate his losses, |
Covered Call Option StrategyMr. X owns Reliance Shares and expects the price to rise in the near future. Mr. X is entitled to receive dividends for the shares he hold in cash market. Covered Call Strategy involves selling of OTM Call Option of the same underlying asset. The OTM Call Option Strike Price will generally be the price, where Mr. X will look to get out o .. |
SYNTHETIC LONG CALL Vs COVERED CALL - Details
SYNTHETIC LONG CALL | COVERED CALL | |
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Market View | Bullish | Bullish |
Type (CE/PE) | CE (Call Option) | CE (Call Option) |
Number Of Positions | 2 | 2 |
Strategy Level | Beginners | Advance |
Reward Profile | When Price of Underlying > Purchase Price of Underlying + Premium Paid | Limited |
Risk Profile | Limited (Maximum loss happens when the price of instrument move above from the strike price of put) | Unlimited |
Breakeven Point | Underlying Price + Put Premium | Purchase Price of Underlying- Premium Received |
SYNTHETIC LONG CALL Vs COVERED CALL - When & How to use ?
SYNTHETIC LONG CALL | COVERED CALL | |
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Market View | Bullish | Bullish |
When to use? | A trader is bullish in nature for short term, but also fearful about the downside risk associated with it. | An investor has a short term neutral view on the asset and for this reason holds the asset long and has a short position to generate income. |
Action | Buy 1 ATM Put or OTM Put | (Buy Underlying) (Sell OTM Call Option) |
Breakeven Point | Underlying Price + Put Premium | Purchase Price of Underlying- Premium Received |
SYNTHETIC LONG CALL Vs COVERED CALL - Risk & Reward
SYNTHETIC LONG CALL | COVERED CALL | |
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Maximum Profit Scenario | Current Price - Purchase Price - Premium Paid | [Call Strike Price - Stock Price Paid] + Premium Received |
Maximum Loss Scenario | Premium Paid | Purchase Price of Underlying - Price of Underlying) + Premium Received |
Risk | Limited | Unlimited |
Reward | Unlimited | Limited |
SYNTHETIC LONG CALL Vs COVERED CALL - Strategy Pros & Cons
SYNTHETIC LONG CALL | COVERED CALL | |
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Similar Strategies | Protective Put, Long Call | Bull Call Spread |
Disadvantage | •Chances of loss if the underlying goes down. •Incur losses if option is exercised. | • Unlimited risk, limited reward. • Inability to earn interest on the proceed used to buy the underlying stock. |
Advantages | •Limited risk, unlimited profit. •Protection to your long-term holdings. • Limited loss to the to the premium paid for Put option. | • Profit from option premium, rise in the underlying stock and dividends on the stock. • Allows you to generate income from your holding. • Profit when underlying stock price rise, move sideways or marginal fall. |