20 lines
1.1 KiB
Plaintext
20 lines
1.1 KiB
Plaintext
Synthetic Stock Positions
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Created by Puts and Calls
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It is possible for a strategist to establish a position that is essentially the same as a
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stock position, and he can do this using only options. The option position generally
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requires a smaller margin investment and may have other residual benefits over sim
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ply buying stock or selling stock short. In brief, the strategies are summarized by:
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1. Buy call and sell put instead of buying stock.
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2. Buy put and sell call instead of selling stock short.
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SYNTHETIC LONG STOCK
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When one buys a call and sells a put at the same strike, he sets up a position that is
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equivalent to owning the stock. His position is sometimes called "synthetic" long
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stock.
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Example: To verify that this option position acts much like a long stock position
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would, suppose that the following prices exist:
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XYZ common, 50;
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XYZ January 50 call, 5; and
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XYZ January 50 put, 4.
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If one were bullish on XYZ and wanted to buy stock at 50, he might consider the
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alternative strategy of buying the January 50 call and selling (uncovered) the January
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