A synthetic short put is created when long stock position is combined with a short call of the same series. It is so named because the established position has the same profit potential a short put.
|Synthetic Short Put Construction|
|Long 100 Shares|
Sell 1 ATM Call
The covered call is a popular example of a synthetic short put.
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 put position can be calculated using the following formula.
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