Long Call Vs Synthetic Call Options Trading Strategy Comparison

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

Long Call Vs Synthetic Call

	Long Call	Synthetic Call


About Strategy	A Long Call Option trading strategy is one of the basic strategies. In this strategy, a trader is Bullish in his market view and expects the market to rise in near future. The strategy involves taking a single position of buying a Call Option (either ITM, ATM or OTM). This strategy has limited risk (max loss is premium paid) and unlimited profit potential. When the trader goes long on call, the trader buys a Call Option and later sells it to earn profits if the price of the underlying asset goes up. When the trader buys a call, he pays the option premium in exchange for the right (but not the obligation) to buy share or index at a fixed price by a certain expiry date. This premium is the only amount at-the-risk for trader in case the mark... Read More	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.
Market View	Bullish	Bullish
Strategy Level	Beginners	Beginners
Options Type	Call	Call + Underlying
Number of Positions	1	2
Risk Profile	Limited	Limited
Reward Profile	Unlimited	Unlimited
Breakeven Point	Strike Price + Premium	Underlying Price + Put Premium

When and how to use Long Call and Synthetic Call?

	Long Call	Synthetic Call
When to use?	A long call Option strategy works well when you expect the underlying instrument to move positively in the recent future. If you expect XYZ company to do well in near future then you can buy Call Options of the company. You will earn the profit if the price of the company shares closes above the Strike Price on the expiry date. However, if underlying shares don't do well and move downwards on expiry date you will incur losses (i.e. lose premium paid).	A Synthetic Call option strategy is when a trader is Bullish on long term holdings but is also concerned with the associated downside risk.
Market View	Bullish When you're expecting a rise in the price of the underlying and increase in volatility.	Bullish
Action	Buy Call Option A long call strategy involves buying a call option only. So if you expect Reliance to do well in near future then you can buy Call Options of Reliance. You will earn a profit if the price of Reliance shares closes above the Strike price on the expiry date. However, if Reliance shares don't move up within the expiry date you will incur losses.	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.
Breakeven Point	Strike Price + Premium The break-even point for Long Call strategy is the sum of the strike price and premium paid. Traders earn profits if the price of the underlying asset moves above the break-even point. Traders loose premium if the price of the underlying asset falls below the break-even point.	Underlying Price + Put Premium

Compare Risks and Rewards (Long Call Vs Synthetic Call)

	Long Call	Synthetic Call
Risks	Limited The risk is limited to the premium paid for the call option irrespective of the price of the underlying on the expiration date. Max Loss = Premium Paid	Limited Maximum loss happens when price of the underlying moves above strike price of Put. Max Loss = Premium Paid
Rewards	Unlimited There is no limit to maximum profit attainable in the long call option strategy. The trade gets profitable when price of the underlying is greater than strike price plus premium. Profit = Price of Underlying - (Strike Price + Premium Paid)	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
Maximum Profit Scenario	Underlying closes above the strike price on expiry.	Underlying goes up
Maximum Loss Scenario	Underlying closes below the strike price on expiry.	Underlying goes down and option exercised

Pros & Cons or Long Call and Synthetic Call

	Long Call	Synthetic Call
Advantages	Buying a Call Option instead of the underlying allows you to gain more profits by investing less and limiting your losses to minimum.	Provides protection to your long term holdings.
Disadvantage	Call options have a limited lifespan. So, in case the price of your underlying stock is not higher than the strike price before the expiry date, the call option will expire worthlessly and you will lose the premium paid.	You can incur losses if underlying goes down and the option is exercised.
Simillar Strategies	Protective Put, Covered Put/Married Put, Bull Call Spread	Married Put

1 Comments

1. Justin Gilead

| Link|August 16, 2022 9:47:47 PMReply

You partially get it wrong! The max loss will be the equivalent of the call premium paid for a single call position, indeed ; for a synthetic call options, it will be likened to the call options premium that you actually haven't paid as the call position has just been replicated along with the help of a long put and a long underlying though. For instance, if you purchase an ITM put, in addition to the long underlying, then the overall cost will be quite high, but the max risk entailed in the position will be the equivalent of the cheap OTM call options (only time value) that stands on the other side and on the same strike. In short, you may pay more to risk less with a synthetic options ; it definitely does the trick for hedging purposes then.

Compare