Synthetic Call

A synthetic call is a fundamental options strategy that replicates the payoff characteristics of a long call option using a combination of long stock and long put positions, creating identical profit and loss profiles while offering different margin requirements and risk characteristics. This sophisticated approach involves purchasing the underlying stock and buying a put option at the same strike price, effectively creating a position that behaves exactly like owning a call option with unlimited upside potential and limited downside risk. The strategy is particularly useful when call options are overpriced relative to puts, when investors want to maintain stock ownership benefits such as dividends and voting rights, or when specific margin or tax considerations make synthetic positions more advantageous than direct option purchases. Professional traders use synthetic calls as building blocks for complex strategies, arbitrage opportunities, and when market conditions favor synthetic construction over direct option purchases. The strategy demonstrates the fundamental put-call parity relationship and provides flexibility in position construction while maintaining identical economic exposure to traditional call options. Risk management involves understanding the early assignment risks on American-style options and managing the carrying costs associated with stock ownership

If NIFTY is at ₹25,800, set up: Buy NIFTY at ₹25,800, Buy ₹25,800 Put for ₹110, creating total investment of ₹25,910 with payoff identical to owning ₹25,800 Call, providing unlimited upside above ₹25,910 and maximum loss limited to ₹110 premium paid.