Bullish

Bearish

Neutral

Long Synthetic

Components

Buy one call option and sell one put option at the same strike price.

Risk / Reward

Maximum Loss:Unlimited.

Maximum Gain: Unlimited.

Characteristics

When to use: When you are bullish on market direction.

Long Synthetic behaves exactly the same as being long the underlying security. You can use long synthetic's when you want the same payoff characteristics as holding a stock or futures contract. It has the benefit of being much cheaper than buying stock outright.

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Peter

Posted 180 days ago

Sorry...I don't understand your question. Are you saying that selling one put option is that same as buying 2 call options (which it's not)?

Trader09

Posted 180 days ago

Being new into this had little confusion over this strategy.Wats the need to sell one put option when 2 call options wud have meant same thing, as selling an option i suppose entitles u to unlimited risk, whereas buying does not...

Wardo

Posted 395 days ago

I executed a successful synthetic long at the March $22.50 strike for Peabody Energy, symbol BTU. My question is now what? I want to lock in some profit and stay long. With the underlying at $29-30, my $22.50 call has little premium left in it. Whereas say the March $30 calls are $2.50 ask. Any creative thoughts/ideas?

Admin

Posted 396 days ago

Hi Chaser,

If you were to buy the underlying stock you would have to outlay the entire cash to hold the stock. I.e. if the stock was trading at $25, then 100 shares would require you to spend $2,500. However, say you looked at the $25 synthetic with 30days to expiration and 5% interest rates, a call may be trading at 0.76 and the put at 0.63.

So, a long call ($76 debit) minus short put ($63 credit) means the same position only costs $13.

pchaser87

Posted 397 days ago

*what do you mean by cheaper?