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

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

Bull Call Spread Vs Protective Call (Synthetic Long Put)

	Bull Call Spread	Protective Call (Synthetic Long Put)


About Strategy	A Bull Call Spread (or Bull Call Debit Spread) strategy is meant for investors who are moderately bullish of the market and are expecting mild rise in the price of underlying. The strategy involves taking two positions of buying a Call Option and selling of a Call Option. The risk and reward in this strategy is limited. A Bull Call Spread strategy involves Buy ITM Call Option and Sell OTM Call Option.For example, if you are of the view that NIFTY will rise moderately in near future then you can Buy NIFTY Call Option at ITM and Sell Nifty Call Option at OTM. You will earn massively when both of your Options are exercised and incur huge losses when both Options are not exercised.	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	Call + Underlying
Number of Positions	2	2
Risk Profile	Limited	Limited
Reward Profile	Limited	Unlimited
Breakeven Point	Strike price of purchased call + net premium paid	Underlying Price - Call Premium

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

	Bull Call Spread	Protective Call (Synthetic Long Put)
When to use?	A Bull Call Spread strategy works well when you're Bullish of the market but expect the underlying to gain mildly in near future.	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 When you are expecting a moderate rise in the price of the underlying.	Bearish When you are bearish on the underlying but want to protect the upside.
Action	Buy ITM Call Option Sell OTM Call Option A Bull Call Spread strategy involves Buy ITM Call Option + Sell OTM Call Option. For example, if you are of the view that Nifty will rise moderately in near future then you can Buy NIFTY Call Option at ITM and Sell NIFTY 50 Call Option at OTM. You will earn massively when both of your Options are exercised and incur huge losses when both Options are not exercised.	Sell Underlying Stock or Future Buy ATM Call Option
Breakeven Point	Strike price of purchased call + net premium paid	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 (Bull Call Spread Vs Protective Call (Synthetic Long Put))

	Bull Call Spread	Protective Call (Synthetic Long Put)
Risks	Limited The trade will result in a loss if the price of the underlying decreases at expiration. The maximum loss is limited to net premium paid. Max Loss = Net Premium Paid Max Loss happens when the strike price of Call is less than or equal to price of the underlying.	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	Limited Limited To The Difference Between Two Strike Prices Minus Net Premium Maximum profit happens when the price of the underlying rises above strike price of two Calls. The profit is limited to the difference between two strike prices minus net premium paid. Max Profit = (Strike Price of Call 1 - Strike Price of Call 2) - Net 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	Both options exercised	Underlying goes down and Option not exercised
Maximum Loss Scenario	Both options unexercised	Underlying goes down and Option exercised

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

	Bull Call Spread	Protective Call (Synthetic Long Put)
Advantages	Instead of straightaway buying a Call Option, this strategy allows you to reduce cost and risk of your investments.	Minimizes the risk when entering into a short position while keeping the profit potential limited.
Disadvantage	Profit potential is limited.	Premium paid for Call Option may eat into your profits.
Simillar Strategies	Collar, Bull Put Spread	Long Put

1 Comments

1. VB

| Link|February 7, 2023 5:16:25 PMReply

On Bull Put Spread - Advantages and Disadvantages section.

I understand the Advantage of time decay.
On dis-advantage, how time decay may go against in loss situations ?

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