Synthetic Long Call
A synthetic long call is a combination of a long futures position and a long put. It is a bullish strategy and can be used if the trader already has a long futures position.
A trader would use the short call if he perceives a bearish market. The synthetic long call allows him to revise his strategy without the cash flow effect; all he has to do is buy futures, combined with his long put, to give him a synthetic long call.
Its profit/loss profile is the same as a long call strategy. Maximum risk is equal to the premium paid, regardless of how low futures trade. Maximum profits are unlimited on the upside. The break-even futures price is equal to the strike price plus the premium.
Position Premium Dollar Premium Delta Buy one $20 crude oil futures +1.00 Buy one $20 crude oil put - Net debit - Net delta $1.17 $1.17 $1,170 $1,170 -.48 +.52 Maximum risk $1.17 per barrel $1,170 per position Maximum profit Unlimited on the upside Break-even futures price $21.17 Position Premium Dollar Premium Delta Buy one $260 gold futures +1.00 Buy one $260 gold put - 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 upside Break-even futures price $266.70
THERE IS A RISK OF LOSS IN FUTURES TRADING AND IS NOT SUITABLE FOR
ALL INVESTORS. ONLY RISK CAPITAL SHOULD BE USED WHEN TRADING FUTURES.
Copyright 2008 Capitol Commodity Services, Inc. All Rights Reserved.
Education
- Futures Education
- Options Information
- Options Strategies
- Long At-the-Money Call
- Short Out-of-the-Money Call
- Covered Call
- Ratio Write
- Long Out-of-the-Money Call
- Long At-the-Money Put
- Short Out-of-the-Money Put
- Short Covered Put
- Bull Call Spread
- Bear Call Spread
- Bear Put Spread
- Bull Put Spread
- Long At-the-Money Straddle
- Long Strangle
- Short At-the-Money Straddle
- Short Strangle
- Call Ratio Backspread
- Put Ratio Backspread
- Synthetic Long Put
- Synthetic Long Call
- Synthetic Short Futures
- Synthetic Long Futures
- Fence
