Synthetic Long Put

A synthetic long put is a combination of a short futures position and a long call. It is a bearish strategy and can be used if the trader already holds a short futures position.

A trader would use the long call if he perceives a bullish market. The synthetic long put allows him to revise his strategy without the cash flow effect; all he has to do is sell futures, combined with a long call, to give him a synthetic long put.

The profit/loss profile is the same as a long put strategy. Maximum risk is equal to the premium paid, regardless of how high futures prices trade. Maximum profits are unlimited on the downside. The breakeven futures price is equal to the strike price minus the premium paid.

Position Premium Dollar Premium Delta Sell one $20 crude oil futures -1.00 Buy one $20 crude oil call - Net debit - Net delta $1.17 $1.17 $1,170 $1,170 +.52 -.48 Maximum risk $1.17 per barrel $1,179 per position Maximum profit Unlimited on the downside Break-even futures price $18.83 Position Premium Dollar Premium Delta Sell one $260 gold futures -1.00 Buy two $20 gold puts - Net debit - Net delta $6.70 $6.70 $670 $670 +.50 -.50 Maximum risk $6.70 per ounce $670 per position Maximum profit Unlimited on the downside Break-even futures price $253.30