The Synthetic Short Call Matches Stock With Put

A synthetic short call strategy is just one of several possible synthetic option constructions you can consider when options trading. In this particular strategy you would combine a short stock position with a short put that has the same stock as the underlying asset. Since one put represents 100 shares, you would have to short 100 stock shares and sell 1 at-the-money put.

The maximum profit you can make on a synthetic short call is equal to the premium received less any broker commissions paid. There is unlimited loss potential with the loss equal to the market price of the stock minus the sale price of the put underlying asset less the premium plus the commissions paid.

Variety of Synthetic Positions

As mentioned, the synthetic short call is just one type of synthetic position. They are called synthetic because the construction is made up of stocks and options rather than options and options.  The goal is to create the same payoff conditions with the synthetic positions as you would with the implementation of a standard options strategy.

In addition to the synthetic short call there is the synthetic short put, synthetic long call, synthetic long put, synthetic covered call and others. The synthetic short call position and the other synthetic positions can be used to enhance a trading portfolio.

The most commonly used synthetic position is the synthetic long call. In this position, the stock is matched with a put option. The synthetic strategies are considered to be advanced strategies.

Related posts:

• The Synthetic Short Stock Options Strategy
• Short Options Must Sell When Option is Exercised
• “Borrowed” Stock Short Sellers Include in Options Trading
• The Covered Call Stock Option Strategy
• Consider Volatility When Selling a Short Put
• Straddling the Stock Options Put Call Trading Strategies
• Getting Bullish or Bearish with a Call Put Option Strategy
• The Covered Call Options Strategy