short ITM put

Discussion in 'Options' started by minorearth, Jun 1, 2011.

  1. Does anyone know what a short ITM put's synthetic equivalent is?
     
  2. MTE

    MTE

    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).
     
  3. Even if the short put is ITM?
     
  4. 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.
     
  5. MTE

    MTE

    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.
     
  6. Simplified example of MTE's explanation:

    Long 100 shares XYZ @ 50
    Short 1 Jul 60 call @ 1

    vs

    Short 1 Jul 60 put @ 11

    Run the expiration values for any price.
    P&L is identical.