Synthetic Long Stock

An at-the-money long call has a delta = 0.5, whereas an at-the-money short (naked) put has a delta = −(−0.5) = 0.5. When held as a unit, the combination of a long call and a short put, with the same at-the-money strike price, has a delta of 1.0 [0.5 − (−0.50) = 1.0]. Because long stock has a delta of 1.0, this combination of options is known as synthetic stock. What makes this combination particularly appealing is that its net cost is almost zero. The premium received from selling the naked put will come very close to paying for the long call.

Although the net cost of the synthetic stock position is nearly zero, it does come with some strings attached. Your broker will require some margin to maintain this position, because ...

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