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