What is Long Synthetic? | Option Strategies By Vinay Bhandari
Long Synthetic
• Long Synthetic
• Long Synthetic is a strategy to be used when the investor is bullish on the market direction.
• This strategy involves buying a Call Option and selling a Put Option at the same Strike price. Both Options must have the same underlying security and expiration month.
• Long Synthetic behaves the same as being long on the underlying security.
• The investor going for a Long Synthetic strategy expects payoff characteristics similar to holding the stock or futures contract. It has the benefit of being much cheaper than buying the underlying outright.
• Investor View: Bullish on the direction of the Stock / Index.
• Risk: Unlimited.
• Reward: Unlimited.
• Breakeven: Strike Price +/- net premium paid/ received.
• Illustration
• E.g.
Nifty is currently trading @ 15500. A Long Synthetic can be created by
selling Put Strike 15500 @ premium of 140 and buying Call Strike 15500
@ 100. The net inflow of premium is 40.
Strategy | Stock /Index | Type | Strike | Premium |
Long | NIFTY (Lot size 75) | Sell Put | 15500 | 140 Inflow |
Synthetic | Buy Call | 15500 | 100 Outflow |
Payoff Schedule
CMP | SELL15500 | BUY 15500 | NET | LOT SIZE | P&L |
PUT @ 140 | CALL @100 | FLOW | |||
14900 | -460 | -100 | -560 | 75 | -42000 |
15000 | -360 | -100 | -460 | 75 | -34500 |
15100 | -260 | -100 | -360 | 75 | -27000 |
15200 | -160 | -100 | -260 | 75 | -19500 |
15300 | -60 | -100 | -160 | 75 | -12000 |
15400 | 40 | -100 | -60 | 75 | -4500 |
15500 | 140 | -100 | 40 | 75 | 3000 |
15600 | 140 | 0 | 140 | 75 | 10500 |
15700 | 140 | 100 | 240 | 75 | 18000 |
15800 | 140 | 200 | 340 | 75 | 25500 |
15900 | 140 | 300 | 440 | 75 | 33000 |
16000 | 140 | 400 | 540 | 75 | 40500 |
Payoff charts
In the above chart, the breakeven happens the moment Nifty crosses 15460
(since net inflow is 40). In such a strategy, risk and reward are unlimited.
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