Monday, October 22, 2018
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synthetic short call

synthetic short call

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

synthetic short call composition
short 100 shares
sell 1 at the money put

the synthetic short call is so named because the established position has the same profit potential a short call.

 

limited profit potential

the formula for calculating maximum profit is given below:

  • max profit = premium received - commissions paid
  • max profit achieved when price of underlying
synthetic-short-call
 

unlimited risk

the formula for calculating loss is given below:

  • maximum loss = unlimited
  • loss occurs when price of underlying > sale price of underlying + premium received + commissions & fees
  • loss = price of underlying - sale price of underlyingl - premium received + commissions & fees

breakeven point(s)

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

  • breakeven point = sale price of underlying + premium received + commissions & fees

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