EXHIBIT 6.3 Short put vs. short call + long stock.
A short (negative) put is equal to a short (negative) call plus long stock,
after the basis adjustment. Consider that if the put is sold instead of buying
stock and selling a call, the interest that would otherwise be paid on the cost
of the stock up to the strike price is a savings to the put seller. To balance
the equation, the interest benefit of the short put must be added to the call
side (or subtracted from the put side). It is the same with dividends. The
dividend benefit of owning the stock must be subtracted from the call side
to make it equal to the short put side (or added to the put side to make it
equal the call side).
The same delta concept applies here. The short 50-strike put in our
example would have a 0.45 delta. The short call would have a −0.55 delta.
Buying one hundred shares along with selling the call gives the synthetic
short put a net delta of 0.45 (–0.55 + 1.00).
Similarly, a synthetic short call can be created by selling a put and selling
(short) one hundred shares of stock. Exhibit 6.4 shows a conceptual
overview of these two positions at expiration.