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Synthetic Short Call
A synthetic short call is created when short stock position is combined with a short put of the same series.
| Synthetic Short Call Construction |
| Short 100 Shares Sell 1 ATM Put |
The synthetic short call is so named because the established position has the same profit potential a short call.
Limited Profit Potential
The formula for calculating maximum profit is given below:
- Max Profit = Premium Received - Commissions Paid
- Max Profit Achieved When Price of Underlying <= Strike Price of Short Put
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| Synthetic Short Call Payoff Diagram |
Unlimited Risk
The formula for calculating loss is given below:
- Maximum Loss = Unlimited
- Loss Occurs When Price of Underlying > Sale Price of Underlying + Premium Received
- Loss = Price of Underlying - Sale Price of Underlyingl - Premium Received + Commissions Paid
Breakeven Point(s)
The underlier price at which break-even is achieved for the synthetic short call position can be calculated using the following formula.
- Breakeven Point = Sale Price of Underlying + Premium Received
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