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
Synthetic Short Call Payoff Diagram
Graph showing the expected profit or loss for the synthetic short call option strategy in relation to the market price of the underlying security on option expiration date.

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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