Converted put

(redirected from Synthetic Puts)

Converted put

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Converted Put

The purchase of a call option and the short sale of the underlying asset. This is effectively the same as buying a put option because one makes a profit if the underlying asset decreases in price. For this reason, a converted put is also called a synthetic put.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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We call the combination of selling mortgage-backed securities (MBS) forward and buying Treasury calls a "convexity put." This term is used to distinguish it from a synthetic put, which is selling MBS forward and buying MBS calls.
A synthetic put and normal put have the same profit profile.