SYNTHETIC FUTURE, SYNTHETIC CALL & SYNTHETIC PUT: Options Trading Strategies

SYNTHETIC FUTURE

A position created by combining call and put options for the purpose of imitating the payout schedule and characteristics of a futures contract.

Buy Future = Buy Call + Sell Put

Mr. X has purchased a Future at Rs. 5000. While Mr. Y has purchased a 5000 Call at Rs. 100 and sell a 5000 put at Rs. 100.Their pay-off at different spot price is as follows.

Spot	Mr. X’s Pay-off	Mr. Y’s Pay-off
	Future Buy @ Rs. 5000	Buy 5000 Call at Rs. 100	Sell 5000 put at Rs. 100	Mr. Y’s Total Pay off
4700	-300	-100	-200	-300
4800	-200	-100	-100	-200
4900	-100	-100	0	-100
5000	0	-100	100	0
5100	100	0	100	100
5200	200	100	100	200
5300	300	200	100	300

Sell Future = Sell Call + Buy Put

Mr. A has sold a Future at Rs. 5000. While Mr. B has sold a 5000 Call at Rs. 100 and purchase a 5000 put at Rs. 100.Their pay-off at different spot price is as follows.

Spot	Mr. A’s Pay-off	Mr. B’s Pay-off
	Future Sell @ Rs. 5000	Sell 5000 Call at Rs. 100	Buy 5000 put at Rs. 100	Mr. Y’s Total Pay off
4700	300	100	200	300
4800	200	100	100	200
4900	100	100	0	100
5000	0	100	-100	0
5100	-100	0	-100	-100
5200	-200	-100	-100	-200
5300	-300	-200	-100	-300

SYNTHETIC CALL OPTION

A position created by combining Future and Put options for the purpose of imitating the payout schedule and characteristics of a Call options.

Buy Call = Buy Future + Buy Put

Mr. X has Purchased 5000 call option @ Rs. 100. While Mr. Y has purchased a future at Rs. 5000 and purchase a 5000 put at Rs. 100.Their pay-off at different spot price is as follows.

Spot	Mr. X’s Pay-off	Mr. Y’s Pay-off
	Buy 5000 Call at Rs. 100	Buy Future at Rs. 5000	Buy 5000 put at Rs. 100	Mr. Y’s Total Pay off
4700	-100	-300	200	-100
4800	-100	-200	100	-100
4900	-100	-100	0	-100
5000	-100	0	-100	-100
5100	0	100	-100	0
5200	100	200	-100	100
5300	200	300	-100	200

Sell Call = Sell Future + Sell Put

Mr. A has Sold 5000 call option @ Rs. 100. While Mr. B has sold a future at Rs. 5000 and sold a 5000 put at Rs. 100. Their pay-off at different spot price is as follows.

Spot	Mr. A’s Pay-off	Mr. B’s Pay-off
	Sell 5000 Call at Rs. 100	Sell Future at Rs. 5000	Sell 5000 put at Rs. 100	Mr. B’s Total Pay off
4700	100	300	-200	100
4800	100	200	-100	100
4900	100	100	0	100
5000	100	0	100	100
5100	0	-100	100	0
5200	-100	-200	100	-100
5300	-200	-300	100	-200

SYNTHETIC PUT OPTION

A position created by combining Future and Call options for the purpose of imitating the payout schedule and characteristics of Put options.

Buy Put = Sell Future + Buy Call

Mr. X has Purchased 5000 put option @ Rs. 100. While Mr. Y sold a future at Rs. 5000 and purchase a 5000 call at Rs. 100.Their pay-off at different spot price is as follows.

Spot	Mr. X’s Pay-off	Mr. Y’s Pay-off
	Buy 5000 Put at Rs. 100	Sell Future at Rs. 5000	Buy 5000 Call at Rs. 100	Mr. Y’s Total Pay off
4700	200	300	-100	200
4800	100	200	-100	100
4900	0	100	-100	0
5000	-100	0	-100	-100
5100	-100	-100	0	-100
5200	-100	-200	100	-100
5300	-100	-300	200	-100

Sell Put = Buy Future + Sell Call

Mr. A has Sold 5000 Put option @ Rs. 100. While Mr. B has purchased a future at Rs. 5000 and sold a 5000 Call at Rs. 100.Their pay-off at different spot price is as follows.

Spot	Mr. A’s Pay-off	Mr. B’s Pay-off
	Sell 5000 Put at Rs. 100	Buy Future at Rs. 5000	Sell 5000 Call at Rs. 100	Mr. B’s Total Pay off
4700	-200	-300	100	-200
4800	-100	-200	100	-100
4900	0	-100	100	0
5000	100	0	100	100
5100	100	100	0	100
5200	100	200	-100	100
5300	100	300	-200	100