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Synthetic call

Long stock plus a long put, which produces the same curved payoff as owning a call at that strike.

Rearranged put-call-parity: S + P = C + K. Owning shares and a protective put gives limited downside and unlimited upside — the shape of a long call.

It matters because it reframes the protective-put and the married-put. A trader who says "I own the stock and I bought insurance" holds economically the same position as one who simply bought a call, minus the dividend and plus a lot more capital tied up.

Example: XYZ at $50. Buy 100 shares for $5,000 and the $50 put for $2.10, total outlay $5,210. Or buy the $50 call for $2.30, outlay $230. Both cap the loss near $210–$230 and keep all upside above $50. The difference is $4,980 of capital and any dividend during the period.

Related: synthetic-put, protective-put, put-call-parity

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Payoff of a long call at expiryA flat loss equal to the premium below the strike, turning upward at 45 degrees above it.Profit / loss per share08595115125Strike 105Max loss 3 — the premium paidBreakeven 108Profit keeps growingUnderlying price at expiry
Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.

Educational only, not advice. Spotted an error? Post in Site Feedback.