synthetic put

Synthetic put

A strategy equivalent in risk to purchasing a put option where an investor sells stock short and buys a call.
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

synthetic put

The combination of a call option on a commodity and the short sale of the same commodity with the effect being the same as the purchase of a put option.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
To investors who expect a deeper decline, we suggest another strategy: a synthetic put, which provides the same attractive features as a synthetic call, but for a different market outlook.
The synthetic put option has the following tax items.
To recap, the synthetic call option will produce interest expense plus gain or loss from stock trading, and the synthetic put will produce interest income plus gain or loss from short selling.
Bifurcation of Call Option -- Sum (Not Future Value) of Tax Items Mean Interest Expense on Synthetic Call ($6.28) Mean Net Gain from Stock Trading on Synthetic Call $10.54 Mean Difference between Synthetic and True Call ($0.00) Mean Gain on True Call (Sum of Above) $4.26 Bifurcation of Put Option -- Sum (Not Future Value) of Tax Items Mean Interest Income on Synthetic Put $4.79 Mean Net Loss from Short Selling on Synthetic Put ($3.37) Mean Difference between Synthetic and True Put ($0.01) Mean Gain on True Put (Sum of Above) $1.41
Analysis of Put Option Measured Over 2000 Simulations Mean of Future Value Mean of Sum Difference (Tax-Policy (Current-Law (Current Law Tax Items from Synthetic Put Ideal) Deferral) Less Ideal) Interest Income $5.42 $4.79 ($0.63) Net Loss from Short Selling ($3.95) ($3.37) $0.58 TOTAL $1.47 $1.42 ($0.05)
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.