Long Call Synthetic Strangle Option Strategy

Long call synthetic strangle is a synthetic option strategy with three legs. It replicates long strangle with a combination of short underlying position and two call options with different strikes. Like long strangle, it is long volatility and has limited loss and unlimited potential profit.

long call synthetic strangle option strategy

Example

Let's say a stock is currently trading at $67.55. We can create a long call synthetic strangle with the following trades:

  • Sell short the stock for $67.55.
  • Buy the 65-strike call option for $4.93.
  • Buy the 70-strike call with same expiration for $2.55.

This position is similar to 65-70 long strangle: long 65-strike put and long 70-strike call. The 65-strike put has been replaced with its synthetic equivalent (short stock and long 65-strike call).

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