Synthetic Call Vs Covered Call Options Trading Strategy Comparison

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

Synthetic Call Vs Covered Call

	Synthetic Call	Covered Call


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.	A Covered Call is a basic option trading strategy frequently used by traders to protect their huge share holdings. It is a strategy in which you own shares of a company and Sell OTM Call Option of the company in similar proportion. The Call Option would not get exercised unless the stock price increases. Till then you will earn the Premium. This a unlimited risk and limited reward strategy. Let's assume you own TCS Shares and your view is that its price will rise in the near future. You will Sell OTM Call Option of TCS at a price, where you target to sell your shares. You will receive premium amount for selling the Call option and the premium is your income.
Market View	Bullish	Bullish
Strategy Level	Beginners	Advance
Options Type	Call + Underlying	Call + Underlying
Number of Positions	2	2
Risk Profile	Limited	Unlimited
Reward Profile	Unlimited	Limited
Breakeven Point	Underlying Price + Put Premium	Purchase Price of Underlying- Premium Recieved

When and how to use Synthetic Call and Covered Call?

	Synthetic Call	Covered Call
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.	The covered call option strategy works well when you have a mildly Bullish market view and you expect the price of your holdings to moderately rise in future.
Market View	Bullish	Bullish When you are expecting a moderate rise in the price of the underlying or less volatility.
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.	Buy Underlying Sell OTM Call Option Let's assume you own TCS Shares and your view is that its price will rise in the near future. You will Sell OTM Call Option of TCS at a price, where you target to sell your shares. You will receive premium amount for selling the Call option and the premium is your income.
Breakeven Point	Underlying Price + Put Premium	Purchase Price of Underlying- Premium Recieved

Compare Risks and Rewards (Synthetic Call Vs Covered Call)

	Synthetic Call	Covered Call
Risks	Limited Maximum loss happens when price of the underlying moves above strike price of Put. Max Loss = Premium Paid	Unlimited Maximum loss is unlimited and depends on by how much the price of the underlying falls. Loss happens when price of underlying goes below the purchase price of underlying. Loss = (Purchase Price of Underlying - Price of Underlying) + 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 You earn premium for selling a call. Maximum profit happens when purchase price of underlying moves above the strike price of Call Option. Max Profit= [Call Strike Price - Stock Price Paid] + Premium Received
Maximum Profit Scenario	Underlying goes up	Underlying rises to the level of the higher strike or above.
Maximum Loss Scenario	Underlying goes down and option exercised	Underlying below the premium received

Pros & Cons or Synthetic Call and Covered Call

	Synthetic Call	Covered Call
Advantages	Provides protection to your long term holdings.	It helps you generate income from your holdings. Also allows you to benefit from 3 movements of your stocks: rise, sidewise and marginal fall.
Disadvantage	You can incur losses if underlying goes down and the option is exercised.	Unlimited risk for limited reward.
Simillar Strategies	Married Put	Bull Call Spread

1 Comments

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