Saturday, January 19, 2019
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Short Put

synthetic short put

synthetic short put

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

synthetic short put construction
long 100 shares
sell 1 at the money put

the covered call is a popular example of a synthetic short put.

limited profit potential

the formula for calculating maximum profit is given below:

  •  max profit = premium received - commissions & fees
  •  max profit achieved when price of underlying >= strike price of short call

unlimited risk

the formula for calculating loss is given below:

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


breakeven point(s)

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

  • breakeven point = purchase price of underlying - premium received - commissions & fees

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