This document discusses synthetic put options, which are created by combining a short stock position with a long call option on the same stock. This combination mimics the payoff of a long put option. The document defines synthetic puts and outlines their characteristics, including their profit/loss potential and breakeven points. It also provides historical price data for a synthetic put on ADA/USD from December 2017 to February 2018, showing the monthly opening, high, and low prices.

1. Submitted by:
Riewphira Dohtdong
163CO137
TRADING DETAILS OF
SYNTHETIC PUT OPTION

2. INTRODUCTION
 In finance, a synthetic position is a way to create the payoff of
a financial instrument using other financial instruments.
 It can be created by buying or selling the underlying financial
instruments and/or derivatives.
 A synthetic position is taken to create the same payoff of a financial
instrument by using other financial instruments. A synthetic position
exists if multiple financial instruments with the same payoff as
investing in a share are bought.
 A synthetic put option is created by combining Future and Call
options for the purpose of imitating the payout schedule and
characteristics of a put option

3. TYPES OF SYNTHETIC POSITION
 Synthetic Long Stock
A synthetic long stock position is by emulating the potential
outcomes of actually owning stock using options. To create one,
buy the money calls based on the relevant stock and then write
at the money puts based on the same stock.
 Synthetic Short Stock
The synthetic short stock position is the equivalent of short
selling stock, but using only options instead. Creating the
position requires the writing of at the money calls on the relevant
stock and then buying at the money puts on the same stock.
 Synthetic Long Call
It is created by buying put options and buying the relevant
underlying stock. This combination of owning stocks and put
options based on that stock is effectively the equivalent of
owning call options.

4.  Synthetic Short Call
A synthetic short call involves writing puts and short selling the
relevant underlying stock. The combination of these two positions
effectively recreates the characteristics of a short call options
position.
 Synthetic Long Put
A synthetic long put is also typically used when there is
expectations that the underlying security will rise, and then
expectations change and anticipate a fall. If call options have been
bought on stock that were expecting to rise, simply short sell that
stock.
 Synthetic Short Put
A normal short put position is usually used when expectations of
the price of an underlying stock increase by a moderate amount.
The synthetic short put position would generally be used when
investors had previously been expecting the opposite to happen (i.e.
a moderate drop in price).

5. Advantages of Synthetic Positions
 First, is the fact that synthetic positions can easily be used to
change one position into another when expectations change
without the need to close out the existing ones.
 The advantage of the synthetic position is that to place one order
to buy the underlying stock rather than two orders to close short
call position and secondly to open short put position.
 The second advantage is that when holding a synthetic position,
it's potentially much easier to benefit from a shift in the
expectations.
 The third main advantage is basically as a result of the two
advantages, the flexibility of synthetic positions usually means that
considering making less transactions.

6. SYNTHETIC PUT
 Meaning: A synthetic put is a trading strategy that combines
the short sale of a security with a long-call position on the same
security. Synthetic put combination is to effectively create a
synthetic put position that has almost the same risk-reward
attributes as a straightforward put position, but with added
advantages such as flexibility and liquidity. Synthetic puts are
often used by institutional investors to disguise their trading bias
(bullish or bearish) on a specific security.
 A synthetic long put is created when short stock position is
combined with a long call of the same series. By combining
a long call option and a short stock position, the investor
simulates a long put position.

7.  The synthetic long put is so named because the
established position has the same profit potential
as long put.
 This strategy combines a long call and a short stock position. Its
payoff profile is equivalent to a long put's characteristics. The
strategy profits if the stock price moves lower. The faster and
sharper the move lower, the better. The time horizon is limited to
the life of the option.

8. Characteristics
 Motivation
The only motive is to profit from a fall in stock's price.
 Volatility
An increase in volatility would have a positive impact on this
strategy, all other things equal. For one thing, it would tend to
boost the long call option's resale value.
 Time Decay
The passage of time will have a negative impact on this strategy,
all other things being equal. As expiration approaches, the call's
resale value tends to converge on its intrinsic value, which for
out-of-the-money options is zero.

9. Characteristics
 Unlimited Profit Potential
The maximum loss is limited. The loss would be the selling price of
the stock (where it was sold short), less the purchase price of the
stock (the strike price), less the premium paid for the call option.
Maximum loss = Strike price – Short sale price
premium paid
The maximum gain is limited but potentially substantial. The total
profit, however, would be reduced by the premium paid for the call
option, which expired worthless.
Maximum gain = Short sale price - premium paid

10. Breakeven Point(s)
 At expiration, the strategy breaks even if the stock price has
declined by an amount equal to the premium paid for the option.
 The underline price at which break-even is achieved for the
synthetic long put position can be calculated using the following
formula.
 Breakeven Point = Sale Price of Underlying - Premium Paid

11. Historical Data of Synthetic put during 1st December, 2017 - 28th
February, 2018
 The following table shows the trading details of ADA/USD synthetic on a
average 3month basis:
Source: https://www.investing.com/currencies/ada-usd-historical-data
Month Price Open(Rs.) High(Rs.) Low(Rs.)
December 2017 0.313279 0.293372 0.341423 0.259586
January 2018 0.740908 0.748549 0.810044 0.657916
February 2018 0.358413 0.365917 0.387968 0.332424

12. 0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Dec-17 Jan-18 Feb-18
Open(Rs.)
High(Rs.)
Low(Rs.)
P
r
i
c
e
Month

13. Intrepretation
 From the table and figure reveals the trading of synthetic put
during the three months (December, January and February). The
details of the table are explained below:
 The opening price of synthetic put in December 2017 is
Rs.0.293372. The highest price quoted in this month is Rs.
0.341423 and the lowest price quoted is Rs.0.259586
 The opening price of synthetic put in January 2018 is
Rs.0.748549. The highest price quoted in this month is Rs.
0.810044 and the lowest price quoted is Rs.0.657916
 The opening price of synthetic put in December 2017 is
Rs.0.293372. The highest price quoted in this month is Rs.
0.341423 and the lowest price quoted is Rs.0.259586

14. Conclusion
Synthetic positions enable traders and investors to create profits
of equal value from one underlying instrument by taking
opposite or related positions in that same market. It is a trading
strategy that seeks to lock in a risk-free profit by buying one
investment and simultaneously selling a similar or related
investment at a different price. Synthetic positions help traders
and investor in lower transaction cost, efficient price discovery
and provide more efficient use of capital and flexibility.
Synthetic positions are an efficient way for investors to create
profits as well as a strategy to take advantage of discrepancies in
options theoretical values.