Investopedia

Continue to Site »

Synthetic Call

Filed Under »
Dictionary Says

Definition of 'Synthetic Call'

An investment strategy that mimics the payoff of a call option. A synthetic call is created by purchasing the underlying asset, selling a bond and purchasing a put option. The strike price on the put option is equal to the face value of the bond, which serves as the exercise price of the synthetic call.
Investopedia Says

Investopedia explains 'Synthetic Call'

A synthetic call produces the same overall payoff as a call option. The synthetic call will finish in the money when the price of the underlying asset is greater than the face value of the sold bond at the time of expiration. It will be out-of-the-money when the value of the bond is greater than that of the underlying asset. When the synthetic call is in the money, the profit is the difference between the price of the underlying asset and the face value of the bond. If the call finishes out of the money, the put option absorbs the loss from the underlying asset, with the exercise price of the put paying for the bond.

Articles Of Interest

  1.

    Cut Down Option Risk With Covered Calls

    A good place to start with options is writing these contracts against shares you already own.

  2. Naked Call Writing: A Risky Options Strategy

    Learn about this aggressive trading strategy to generate income as part of a diversified portfolio.

  3. Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.

  4. Going Long On Calls

    Learn how to buy calls and then sell or exercise them to earn a profit.

  5. Introduction To Put Writing

    Learn about a strategy that may be appropriate if you have a positive outlook on a stock.

  6. Get Into Low-Cost Futures Trading With Synthetics

    If you can't trade commodity futures outright, these vehicles provide a less expensive alternative.

  7. Synthetic Options Provide Real Advantages

    Participate in options trading trading that is simpler, less expensive and easier to manage.

  8. Option Spread Strategies

    Learn why option spreads offer trading opportunities with limited risk and greater versatility.

  9. Making It Big On Wall Street

    Read about some of the most glamorous Wall Street jobs and what it takes to land one.

  10. Quants: The Rocket Scientists Of Wall Street

    Blend math, finance and computer skills to command a high - and well deserved - salary.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  2. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  3. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  4. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  5. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  6. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.
Trading Center