(A synthetic long is where you buy a call and sell a put at the same strike price, often close to the underlying price)
Often when you use a synthetic long, the actual debit is small compared to the price of the call by itself. In some cases the difference is enough between the long call and the short put that I get even a small credit.
If you're bullish the gains you get are basically free....since your actual premium was so low. And if there's a really strong bullish rally you can buy the short put back for pennies. I've seen this happen a few times with TSLA and AMC synthetic longs. After I buy the put back: my out of pocket cost is extremely small....I can let the remaining long run with little consequence.
This strategy is even more awesome for LEEP options: as all you really pay is the difference between the short put and long call. If there's a stock you're long term bullish on: buy a synthetic long Leep spread. When a rally happens, buyout the put and you got a cheap LEEP. And because you bought a leep spread: it's unlikely the short put would get executed early (but of course can happen), as the put buyer's breakeven needs much larger losses than a weekly put.
Can someone tell me what I'm missing? Yes it ties up collateral (on most platforms since you can't sell naked puts), but the risk looks very favorable compared to just going long on a stock.
Submitted July 04, 2021 at 01:07AM by Panzercannon03 https://ift.tt/3dIwxY5
