Options Trading Strategies | The Synthetic Bought Put

There are different ways of protecting your portfolio while building it by the use of some strategies. Options trading provide flexibility and leverage by definition; but with the correct approach these levers can be used as insurance in order to held your assets.

I present you the synthetic bought put

A synthetic bought put is the combination of a sold future and a bought call option.

synthetic bought put= sold future + bought call

On having come to the expiration, when the price of the underlying is superior to that of exercise of the call, the loss that would take place for the sold future is compensated by exercising the option of the call. The results of the sold future and the call neutralize each other between since they go in the opposite directions, remaining as loss the full cousin.

Result = (Price of selling of the future – underlying Price) + (underlying Price – Price of Exercise of the call – full premium)

On the other hand, if, on having come to the expiration, the price of the underlying one is minor that the price of exercise of the call, this one will not exercise, giving place to the loss of the premium but to the benefit derived from the sold future

Result = (Price of selling of the future – underlying Price) – full premium

Therefore, the combination of the sold future and the buy of a call behave as if they were a putt bought: Unlimited benefits if the price of the underlying one falls down and losses limited to the full premium if the price rises.

A variant of this strategy is the acquaintance as protective call. It is realized when a selling position is had with actions (selling of stocks on credit) and is protected from a rise of the market by means of the buy of a call.

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