A synthetic long put is created when short stock position is combined with a long call of the same series.
Sell short 100 shares; Buy 1 call.
The synthetic long put is so named because the established position has the same profit potential as long put.
Profit potential
Profit is bounded for the stated stock/index position.
Stock sale price minus the call premium paid, if the stock falls to zero.
Loss potential
Loss is finite under the stated assumptions, but can be substantial. A stock or nonnegative index cannot fall below zero.
Call strike price minus the stock sale price, plus the call premium paid.
Breakeven points
Stock sale price minus the call premium paid, provided that price is between zero and the call strike.
Amounts are per share before fees. Multiply by the shares covered by the position; standard equity options usually cover 100 shares per contract. If a maximum profit or loss calculation gives a negative amount, use zero. These figures assume matching contracts held to expiration and do not include financing or early assignment.
Financial mechanics reviewed:
Sources: OIC strategy reference; OIC assignment guidance. Formulas use the stated payoff assumptions; examples are illustrative, not market quotes. Editorial standards and corrections.