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Synthetic Long Put
A synthetic long put is created when short stock position is combined with a long call of the same series.
| Synthetic Long Put Construction |
| Short 100 Underlying Buy 1 ATM Call |
The synthetic long put is so named because the established position has the same profit potential as long put.
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
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 can be calculated using the following formula.
- Breakeven Point = Sale Price of Underlying - Premium Paid