Synthetic Call
Owning shares plus buying a put gives the same P/L profile as a long call. Useful when you already hold the stock and want call exposure without redeploying capital.
Profit / Loss Diagram
Synthetic Call at expiration
What is this strategy?
The Synthetic Call replicates the P/L profile of a Long Call using a different combination: owning 100 shares plus buying 1 put. The result is <em>identical</em> to buying a call: capped loss on the downside, unlimited gain on the upside.
The Synthetic Call is functionally equivalent to the Protective Put — the same concept with a different emphasis. The difference is <em>context</em>: if your starting position is "I own shares", calling it a Synthetic Call highlights the equivalence with a call. If your starting position is "I want protection", calling it a Protective Put highlights the defensive aspect.
It is useful as a mental framing when you want to think in terms of calls but already hold shares you do not want to sell, whether for tax reasons, dividends or otherwise. Same cost, same risk as buying a call directly.
Construction
| Action | Instrument | Strike | Expiration | Example |
|---|---|---|---|---|
| OWN | 100 Shares | N/A | N/A | +100 SPY @ $450 |
| BUY | 1 Put | ATM or slightly OTM | 30-90 DTE | +1 SPY May 445 Put |
Example
You own 100 SPY at $450. You buy 1 445 put for $5.
- Base Position +100 SPY @ $450 = $45,000
- Long 445 Put −$500 (+1 May 445 Put @ $5)
- Maximum Loss $1,000 ($450 − $445 + $5 = $10 × 100)
- Profit if SPY = $500 +$4,500 ($50 stock gain − $5 put = $45 × 100)
The Greeks
Equivalent to the delta of an ITM or ATM long call.
The put loses value with time, like any long option.
The put appreciates as implied volatility rises.
Long gamma from the out-of-the-money put.
Position Management
- 01 Same as the Protective Put Roll the put at 30 days to expiration, and consider closing if IV rises sharply.