Synthetic equivalents are identical?? I agree that on expiration day the risk profile of a naked put is the same as a covered call but what about post-expiration date? Sell a naked put (ATM) for $1 and the stock price is $5 less on expiration date = $4 loss. Purchase stock and sell a covered call (ATM) for $1 and the stock price is $5 less on expiration date = $4 loss BUT one still owns the stock and isn't forced to do anything with the stock. If the stock regains the $5 drop in share price the following week, the naked put seller still has a $4 loss. The covered call writer has a $1 gain. {Of course if the stock continues to drop the loss would exceed that suffered by the naked put seller} Synthetic equivalents are similar, but only if one closes out all positions on the same date (or I guess the naked put seller could buy the stock on expiration date so as to be in the same position as the covered call writer). Comments? Theta
Well, exactly. Synthetic relationships hold throughout the options' life, once options expire the relationships disappear as the options in question no longer exist.
I'm curious. With a $50k account and it appears that you are just starting out trading, why did you choose options as a trading vehicle? What attracted you to options over say, futures?
Okay-- just wanted to make sure all readers realize that some equivalents are "more equal than others" depending on the circumstances. Theta