SYNTHETIC LONG STOCK
Overview
Buy a call and sell a put at the same strike and expiration. Replicates owning 100 shares with near-identical profit and loss behavior but requires far less capital. Above the strike you profit like a stockholder; below it you lose like one — including the obligation to buy shares if the short put is assigned.
What it does
Buying a call and selling a put at the same ATM strike creates almost identical profit/loss behavior to owning 100 shares — but requires far less capital. The long call profits from every dollar the stock rises above the strike; the short put loses money for every dollar it falls below the strike, exactly mirroring stock ownership. Key advantage: capital efficiency. Key risk: short put assignment.
Structure
buy 1 call + sell 1 put
Setup
- 1.Buy 1 ATM Call.
- 2.Sell 1 ATM Put.
- 3.Same strike and expiration.
Max profit
Unlimited. Mirrors long stock — every $1 rise in the underlying equals $100 gain per contract.
Max loss
Substantial. Same as owning stock: underlying can drop to zero. (Strike + Net Debit) × 100. E.g., $175 + $0.20 = $175.20 breakeven.
Breakeven
Strike Price + Net Debit (or − Net Credit). E.g., $175 + $0.20 = $175.20.
When to use
When you want stock-like exposure with significantly less capital outlay, or when direct share purchase isn't practical.
When to avoid
If you don't fully understand short put assignment risk — being assigned forces you to buy shares at the strike.
Example trade
Stock: AAPL at $175 Buy 1 AAPL $175 Call (60-day) at $5.20 Sell 1 AAPL $175 Put (60-day) at $5.00 Net Debit: $0.20 ($20) Breakeven: $175.20 If AAPL rises to $190: Call profit = $14.80; Net P&L = $1,480 If AAPL falls to $160: Put loss = -$15; Net P&L = -$1,520 (same as owning stock) Capital required: ~$2,000 margin vs $17,500 to own shares
Common mistakes
- ×Not being prepared for assignment on the short put — if the stock falls and the put is exercised early, you'll be forced to buy shares at the strike.
- ×Treating it as zero-risk because of 'zero cost' — the downside exposure is identical to owning stock.
- ×Using deep ITM strikes — increases the chance of early assignment on the short put.
- ×Not accounting for dividends — if AAPL pays a dividend, early assignment risk on the short put increases sharply.
- ×Confusing with a risk reversal — synthetic long uses ATM strikes; risk reversal uses OTM strikes with a gap between them.
FAQ
Why would I use a synthetic long instead of just buying stock?
Capital efficiency — a synthetic long on AAPL might require $2,000 margin vs $17,500 to own shares outright. This frees capital for other trades.
What happens if the short put is assigned?
You're obligated to buy 100 shares at the put strike. You still have the long call — but now you own stock plus a call, effectively becoming a 'synthetic straddle'.