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synthetic long call

synthetic long call

a synthetic long call is created when long stock position is combined with a long put of the same series. it is so named because the established position has the same profit potential as a long call.

married put and protective put strategies are examples of synthetic long calls.

synthetic long call composition
long 100 shares
buy 1 at the money put

the formula for calculating profit is given below:

  • maximum profit = unlimited
  • profit achieved when price of underlying > purchase price of underlying + premium paid + commissions & fees
  • profit = price of underlying - purchase price of underlying - premium paid - commissions & fees

synthetic-long-call

limited risk

the formula for calculating maximum loss is given below:

  • max loss = premium paid + commissions & fees
  • max loss occurs when price of underlying

breakeven point(s)

the underlier price at which break-even is achieved for the synthetic long call position can be calculated using the following formula.

  • breakeven point = purchase price of underlying + premium paid + commissions & fees

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