Discussion in 'Options' started by minorearth, Jun 1, 2011.
Does anyone know what a short ITM put's synthetic equivalent is?
A short put is equivalent to a covered call position at the same strike (i.e. long stock and short call with the same strike price as the put).
Even if the short put is ITM?
A covered call can be ITM too. You can create the same ITM short put by selecting the appropriate strike to set up a covered call.
It doesn't matter whether it is ITM, ATM or OTM. Synthetics always use the same strike(s).
For example, say the stock is at 50. If you have a short 60 put then it is ITM. A synthetic position would be long stock + short 60 call.
In other words, an ITM short put is equivalent to an OTM covered call.
Simplified example of MTE's explanation:
Long 100 shares XYZ @ 50
Short 1 Jul 60 call @ 1
Short 1 Jul 60 put @ 11
Run the expiration values for any price.
P&L is identical.
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