Synthetic Put

A synthetic put is an advanced options strategy that replicates the payoff characteristics of a long put option using a combination of short stock and long call positions, creating identical profit and loss profiles while offering different execution and margin characteristics. This sophisticated approach involves shorting the underlying stock and buying a call option at the same strike price, effectively creating a position that behaves exactly like owning a put option with significant downside profit potential and limited upside risk. The strategy is particularly useful when put options are overpriced relative to calls, when investors want to maintain short exposure with defined risk, or when specific margin or borrowing considerations make synthetic positions more advantageous than direct put purchases. Professional traders use synthetic puts for portfolio hedging, arbitrage opportunities, and when market conditions favor synthetic construction over direct option purchases due to pricing inefficiencies or liquidity constraints. The strategy demonstrates advanced understanding of put-call parity relationships and provides flexibility in bearish position construction while maintaining identical economic exposure to traditional put options. Risk management involves understanding short stock borrowing costs, dividend obligations, and early assignment risks on American-style options

If NIFTY is at ₹25,800, set up: Short NIFTY at ₹25,800, Buy ₹25,800 Call for ₹120, creating net credit of ₹25,680 with payoff identical to owning ₹25,800 Put, providing significant downside profit potential below ₹25,680 and maximum loss limited to ₹120 above ₹25,800.