Synthetic Long Put
The synthetic long put position consists of three elements: shorting one stock, holding one European call option and holding dollars in your bank account.
(Here is the strike price of the option, and is the continuously compounded interest rate, is the time to expiration and is the spot price of the stock at option expiration.)
At expiry you have to repay the stock, which gives a cashflow . The bank account will give a cashflow of dollars. Moreover, the European call gives a cashflow of . The total cashflow is . We see that the total cashflow at expiry is exactly the cashflow of a European put option.
Read more about this topic: Synthetic Position
Famous quotes containing the words synthetic, long and/or put:
“In every philosophical school, three thinkers succeed one another in the following way: the first produces out of himself the sap and seed, the second draws it out into threads and spins a synthetic web, and the third waits in this web for the sacrificial victims that are caught in it—and tries to live off philosophy.”
—Friedrich Nietzsche (1844–1900)
“Swann was one of those men who, having long lived in the illusions of love, saw the well-being that they gave to many women heighten their happiness without evoking in these women any gratitude, any tenderness toward them; but in their child these men believe they feel an affection which, embodied in their very name, will make them outlast their death. When there was to no longer be a Charles Swann, there would still be a Mademoiselle Swann ... who would continue to love her departed father.”
—Marcel Proust (1871–1922)
“The tendency of things runs steadily to this point, namely, to put every man on his merits, and to give him so much power as he naturally exerts,—no more, no less.”
—Ralph Waldo Emerson (1803–1882)