SYNTHETIC LONG CALL
Overview
Own 100 shares and buy a protective put. The combination creates a risk profile identical to a long call — unlimited upside above the breakeven with defined maximum loss below the put strike. This is the economic equivalent of buying a call on the stock.
What it does
Owning 100 shares plus a protective put creates the same payoff diagram as a standalone long call option. The stock position captures all upside; the put creates a hard floor below the put strike, defining maximum loss. This structure is particularly useful for investors who already hold stock and want to transform their unlimited-downside exposure into a capped, call-like risk profile.
Structure
buy 100 stock + buy 1 put
Setup
- 1.Own 100 shares of stock.
- 2.Buy 1 Put option (below current price).
Max profit
Theoretically unlimited. Stock can rise indefinitely above the breakeven.
Max loss
(Stock Purchase Price − Put Strike + Put Premium) × 100. Fully defined at entry.
Breakeven
Stock Purchase Price + Put Premium.
When to use
When you own stock and want to create defined downside risk similar to a long call's payoff profile.
When to avoid
When the put premium cost is prohibitive or when you don't plan to hold the position through the put's expiration.
Example trade
Already own 100 AAPL at $150 (average cost) Buy 1 AAPL $145 Put (90-day) at $4.00 Total Cost Basis: $154.00 per share Breakeven: $154.00 If AAPL rises to $180: P&L = ($180 - $154) × 100 = $2,600 (put expires worthless) If AAPL crashes to $110: P&L = ($145 - $154) × 100 = -$900 (put kicks in at $145) Max Loss: ($154 - $145) × 100 = $900 (regardless of how low AAPL falls)
Common mistakes
- ×Buying a put too close to expiration — short-dated protection is expensive and must be rolled frequently.
- ×Over-paying for protection on a low-volatility stock — the cost reduces returns significantly.
- ×Choosing a put strike too far OTM — creates a large gap between the stock price and the protection floor.
- ×Forgetting to roll the put before expiration — leaving shares unprotected.
- ×Using this strategy when the stock cost basis is already much higher than current price — protection cost may not be worth it.
FAQ
Is a synthetic long call the same as a protective put?
Yes — they are economically identical. The naming difference is a matter of perspective: 'protective put' emphasizes the insurance aspect; 'synthetic long call' emphasizes the resulting payoff profile.
Is this better than just selling the stock and buying a call directly?
Not always — buying a standalone call is cheaper than stock + put. The structure makes sense when you already own shares and want to maintain ownership (voting rights, dividends) while limiting downside.