Home » risk conversion define

risk conversion define

Option Strategies – Synthetic Short (risk conversion)

Option Strategies – Synthetic Short (risk conversion)

The synthetic short stock options strategy consists of simultaneously selling a call option and buying the same number of put options at the same strike price. Both options must be in the same expiration cycle. As the strategy’s name suggests, a synthetic short stock position replicates shorting say 100 shares of stock.

Synthetic Short Stock Strategy Characteristics

 

Synthetic Short Strategy ‘s general characteristics:

Max Profit Potential – it defined by below where the selling and buying the same strike price can result in debit or credit net premium. Breakeven point is simple as explained below

Max Loss Potential: Unlimited

Expiration Breakeven

If … Read the rest