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.
The formula for calculating maximum profit is given below:
The formula for calculating loss is given below:
The underlier price at which break-even is achieved for the synthetic short call position can be calculated using the following formula.
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