Synthetic Long Stock

Synthetic Long Stock

As part of my ongoing option strategy education I wanted to discuss a Synthetic Long position.

A synthetic long is very useful if you want to purchase a stock but do not have the capital to purchase it outright.

RISK: Keep in mind you have the SAME risk to the down side as if you had actually purchased the stock.


Let’s say you wanted to purchase 100 shares of Apple (AAPL) trading at 288.68.

If you wanted to purchase the stock itself you would have to pay $28,868.00 for 100 shares.

Another option, the Synthetic long, would be to buy a Call and Sell a Put at the same Strike (price).

In our AAPL example we would probably purchase the $285.00 Call and sell the $285.00 Put. We need to choose a date at least 30 days away. In this example we are going 56 days out.

What does it cost?

$285.00 Call is priced at $13.60
$285.00 Put is priced at $9.75

This means we could purchase the $285 Call for $1,360.00 and sell the $285.00 Put for $975.00 for a net debit of $385.00.

As you can see, we now control 100 shares of AAPL for $385.00 instead of $28,868.00. Not bad.

Now there are a couple of things to keep in mind.

  1. Although you only paid $385.00 you will have to keep cash in your account to secure this trade. When I entered it my brokerage company required me to keep $6,800.00 to cash secure the Put.
  2. You risk is almost exactly the same as if you purchased 100 shares of the stock. Meaning if AAPL went to $0.00 you would still lose about $29,000.00.

Synthetic longs are not terrible trades is you are considering purchasing the stock itself.

However, there are much better lower risk strategies in my opinion. But, every once in a while I will use this strategy.

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