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.
Hold 100 shares; Sell 1 call.
The Covered Call is a popular example of a Synthetic Short Put.
Limited Profit Potential
Call strike price minus the stock purchase price, plus the call premium received.
The diagram and calculator use this example: Buy 100 shares at $50; Sell 1 $50 call option at $3 per share. All options share one expiration and a 100-unit multiplier. Fees are zero in this example.
Loss potential
Stock purchase price minus the call premium received, if the stock falls to zero.
Breakeven Point(s)
Stock purchase price minus the call premium received, provided that price is at or below the call strike.
Before expiration and assignment
The diagrams and worked outcomes describe expiration payoffs, not an option’s market price before expiration. Time decay, implied volatility, rates, dividends and bid-ask spreads affect early closing values. American-style short options can be assigned early; a protective long option is not automatically exercised when a short leg is assigned. Closing or exercising one leg can change the remaining position’s risk.
Amounts are per share before fees. Multiply by the shares covered by the position; standard equity options usually cover 100 shares per contract. If a maximum profit or loss calculation gives a negative amount, use zero. These figures assume matching contracts held to expiration and do not include financing or early assignment.
