Visually construct and analyze options strategies

Synthetic Long Put

Options Strategy - Synthetic Long Put


The purchase of a Call option allows the short seller to establish a bearish position with limited risk. Because of the short stock, it is not a popular strategy.

When to use

Often times the position is established due to an adjustment to a long Call position. By selling XYZ short, the investor turns a bullish position (long Call) into a bearish position (synthetic long Put).

Risk/Reward Characteristics

Profit potential is limited only by the fact that XYZ cannot decline below zero. Losses are limited as long as the Call option is owned.

Break-even Point: Selling price of XYZ stock - premium paid for Call.

Time Decay: Negative. Over time, the time value portion of the Call erodes (i.e., decays). At expiration, the Call's value will equal its intrinsic value.

Volatility: Changes in the Call option's implied volatility has an effect on the "time value" portion of the option's premium. If volatility increases, the Call option will increase in price. If volatility decreases, it will decrease in price.

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