Strategy reference
Synthetic Long Stock
Synthetic long stock combines a long call and a short put at the same strike to replicate the payoff of owning the underlying shares — without actually buying them.
Structure
Buy one call and sell one put at the same strike, both expiring on the same date. Your combined cost is roughly the difference between the stock price and the strike (with a small interest-rate adjustment) — close to zero when the strike is near where the stock is trading.
Payoff at expiration
At expiration, your gain or loss is roughly how far the stock has moved away from the strike, plus or minus the small initial cost. The position moves dollar-for-dollar with the stock — both upside and downside are open-ended, just like owning the shares directly.
- Stock price
- $100
- Buy
- 1 × $100 call @ $3.50
- Sell
- 1 × $100 put @ $3.50
- Net cost
- ~$0 (slight skew/rate adjustment)
- P&L per $1 stock move
- +$1 above $100 / −$1 below $100
- Max gain
- Unlimited as stock rises
- Max loss
- ~$100 (if stock goes to $0)
Frequently asked questions
What is synthetic long stock?
Synthetic long stock combines a long call and a short put at the same strike and expiration to replicate the payoff of owning the underlying shares.
How does synthetic long stock compare to owning the actual shares?
It moves dollar-for-dollar with the underlying, just like owning the shares. Differences include the cost (a small premium based on interest-rate and skew effects), the lack of dividends, and the option’s finite expiration.
What is the maximum loss on synthetic long stock?
The maximum loss is roughly the strike price itself, mirroring the loss from owning shares if the stock falls to zero. Above the strike, gains are theoretically unlimited.
This page is an educational reference, not investment advice. Numbers in the worked example are approximations for illustration only — real option prices depend on volatility, interest rates, dividends, and time to expiration. See the full disclaimer for details.