Involves selling a call option and a put option with the same strike price and expiration date, and buying the underlying asset. This strategy is similar to a traditional short straddle, but it uses call options instead of put options to create the synthetic position.
Description
The goal of this strategy is to profit from a lack of significant price movement in the underlying asset. If the underlying asset’s price remains relatively stable, both the call and put options will expire out of the money and the trader will keep the premium received from selling the options.
The maximum profit for a synthetic short straddle with calls is the total premium received from selling the call and put options. The maximum loss is unlimited, as the underlying asset’s price can continue to rise or fall significantly beyond the breakeven point. The breakeven point for this strategy is the strike price of the options minus the premium received for the synthetic position.
Breakeven
strike price of the options minus the premium received for the synthetic position.
Sweetspot
Stock price either remains flat
Max profit
is limited. the total premium received from selling the call and put options.
Max loss
Unlimited as stock either goes way up or down.
