Chapter 06 · Section 6.1
Synthetic long underlying position
A synthetic long underlying position can be created by combining a call and a put. Of the choices listed below, which will yield a synthetic long underlying position?
a) long call low exercise & long put high exercise.
b) long call low exercise & short put low exercise.
c) short call high exercise & short put low exercise.
d) short call high exercise & long put high exercise.
Recall from the section on strangles, that if you combine a long call with a long put, you will get a long strangle. A short call with a short put will give you a short strangle.
Of the choices listed above, the solution must therefore use either a long call with a short put or a short call with a long put.