Synthetic Long Put

A synthetic long put is created when short stock position is combined with a long call of the same series.

The synthetic long put is so named because the established position has the same profit potential as long put.

Synthetic Long Put Construction
Short 100 Shares
Buy 1 ATM Call

Unlimited Profit Potential

The formula for calculating profit is given below:

  • Maximum Profit = Unlimited
  • Profit Achieved When Price of Underlying < Sale Price of Underlying - Premium Paid
  • Profit = Sale Price of Underlying - Price of Underlying - Premium Paid
Synthetic Long Put Payoff Diagram
Graph showing the expected profit or loss for the synthetic long put option strategy in relation to the market price of the underlying security on option expiration date.

Limited Risk

The formula for calculating maximum loss is given below:

  • Max Loss = Premium Paid + Commissions Paid
  • Max Loss Occurs When Price of Underlying = Strike Price of Long Call

Breakeven Point(s)

The underlier price at which break-even is achieved for the synthetic long put position can be calculated using the following formula.

  • Breakeven Point = Sale Price of Underlying - Premium Paid

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