Short Synthetic Option Strategy | What is Short Synthetic?
Short Synthetic Option Strategy
Short Synthetic Option Strategy By Vinay Bhandari
Short Synthetic Option Strategy
• Short Synthetic is a strategy to be used when the investor is bearish on the market direction and expects the market to fall in the near term.
• This strategy involves Selling a Call Option and Buying a Put Option at the same Strike price. Both Options must have the same underlying security and expiration month.
• Short Synthetic behaves the same as being short on the underlying security.
• The investor can go for a Short Synthetic strategy expecting payoff characteristics similar to being short on the stock or futures contract.
• The risk and the reward are unlimited.
• Investor View: Bearish on the direction of the Stock / Index.
• Risk: Unlimited.
• Reward: Unlimited.
• Breakeven: Strike Price +/- net premium paid/ received.
• Illustration
• Eg.
• Nifty is currently trading @ 15500. Short Synthetic Option Strategy can be created by selling Call Strike 15500 @ Premium of 140 and buying Put Strike 15500 @ 100. The net inflow of premium is 40.
|
Strategy |
Stock /Index |
Type |
Strike |
Premium |
|
Sell Straddle |
NIFTY (Lot size 75) |
Buy Put |
15500 |
100 |
|
Sell Call |
15500 |
140 |
Payoff Schedule
|
CMP |
Buy 15500 |
SELL 15500 |
NET FLOW |
LOT SIZE |
P&L |
|
Put @ 100 |
Call @ 140 |
||||
|
14900 |
500 |
140 |
640 |
75 |
48000 |
|
15000 |
400 |
140 |
540 |
75 |
40500 |
|
15100 |
300 |
140 |
440 |
75 |
33000 |
|
15200 |
200 |
140 |
340 |
75 |
25500 |
|
15300 |
100 |
140 |
240 |
75 |
18000 |
|
15400 |
0 |
140 |
140 |
75 |
10500 |
|
15500 |
-100 |
140 |
40 |
75 |
3000 |
|
15600 |
-100 |
40 |
-60 |
75 |
-4500 |
|
15700 |
-100 |
-60 |
-160 |
75 |
-12000 |
|
15800 |
-100 |
-160 |
-260 |
75 |
-19500 |
|
15900 |
-100 |
-260 |
-360 |
75 |
-27000 |
|
16000 |
-100 |
-360 |
-460 |
75 |
-34500 |
In the above chart, the breakeven happens the moment Nifty crosses 15540
(since net inflow is 40). In such a strategy, risk and reward are unlimited.
Now we expect you well understand Short Synthetic Option Strategy
Disclaimer :
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