Tuesday, December 18, 2018
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Long Put

synthetic long put

synthetic long put

 a synthetic long put is created when short stock position is combined with a long call of the same series.

synthetic long put construction
short 100 shares
buy 1 at the money put
 
the synthetic long put is so named because the established position has the same profit potential as long put.

unlimited profit potential

the formula for calculating profit is given below:

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


synthetic-long-put

limited risk

the formula for calculating maximum loss is given below:

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

breakeven point(s)

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

  •   breakeven point = sale price of underlying - commissions & fees

 

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