SYNTHETIC LONG PUT
Overview
Short 100 shares and buy an ATM call option. The combination mimics a long put: you profit as the stock falls while the call caps losses if the stock rises. An alternative bearish structure useful when put premiums are elevated.
What it does
Short 100 shares plus a long ATM call creates the same payoff diagram as owning a put option. The short stock profits as the stock falls; the long call limits your loss if the stock rallies above the call strike. It's a bear play with a hard ceiling on loss — mirroring the risk profile of a long put, but using stock and a call instead of just a put.
Structure
sell short 100 stock + buy 1 call
Setup
- 1.Short 100 shares of stock.
- 2.Buy 1 ATM Call option (to cap upside risk).
Max profit
(Short Sale Price − Call Premium) × 100. E.g., ($175 − $4.50) × 100 = $17,050.
Max loss
Limited to call premium plus any gap between short price and call strike. E.g., $4.50 × 100 = $450.
Breakeven
Short Sale Price − Call Premium. E.g., $175 − $4.50 = $170.50.
When to use
When you want bearish exposure that mirrors a long put but direct put premiums are expensive relative to historical norms.
When to avoid
If borrowing costs for the short stock are high or the stock is on the hard-to-borrow list.
Example trade
Short 100 AAPL at $175 Buy 1 AAPL $175 Call (60-day) at $4.50 Breakeven: $175 − $4.50 = $170.50 If AAPL falls to $155: Short stock P&L = +$2,000; Call = $0; Net = +$2,000 − $450 cost = $1,550 If AAPL rises to $200: Short stock loss = -$2,500; Call profit = +$2,500 − $450; Net loss = -$450 maximum Max Loss: $450 (call premium paid — stock loss is fully hedged above $175)
Common mistakes
- ×Ignoring borrow costs — hard-to-borrow stocks can make the short stock leg very expensive.
- ×Using when put premiums are actually cheap — a simple long put may be more cost-efficient.
- ×Forgetting that short stock has dividend risk — if the stock pays a dividend, you owe it to the lender.
- ×Not having a plan for early assignment on the long call — it's unlikely but possible.
- ×Treating max loss as zero — you still pay the call premium upfront as the cost of protection.
FAQ
When would you prefer a synthetic long put over a regular long put?
When put premiums are inflated (high IV skew) and call premiums are relatively cheaper, buying a call + shorting stock can be more cost-effective than buying the put directly.