15 lines
978 B
Plaintext
15 lines
978 B
Plaintext
Comparing Synthetic Calls and Puts
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The common thread among the synthetic positions explained above is that,
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for a put-call pair, long options have synthetic equivalents involving long
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options, and short options have synthetic equivalents involving short
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options. After accounting for the basis, the four basic synthetic option
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positions are:
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Because a call or put position is interchangeable with its synthetic
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position, an efficient market will ensure that the implied volatility is closely
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related for both. For example, if a long call has an IV of 25 percent, the
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corresponding put should have an IV of about 25 percent, because the long
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put can easily be converted to a synthetic long call and vice versa. The
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greeks will be similar for synthetically identical positions, too. The long
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options and their synthetic equivalents will have positive gamma and vega
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with negative theta. The short options and their synthetics will have
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negative gamma and vega with positive theta. |