A synthetic short put is created when long stock position is combined with a short call of the same series. It is so named because the established position has the same profit potential a short put.
Position construction
Long 100 Underlying, Sell 1 ATM Call
The covered call is a popular example of a synthetic short put.
Limited Profit Potential
Maximum profit
Premium Received - Commissions Paid
Profit achieved when: Price of Underlying >= Strike Price of Short Call
Unlimited Risk
Maximum loss
Unlimited
Loss occurs when: Price of Underlying < Purchase Price of Underlying - Net Premium Received
Loss = Purchase Price of Underlying - Price of Underlying - Premium Received + Commissions Paid
Breakeven point
Breakeven
Purchase Price of Underlying - Premium Received