Short Call Synthetic Strangle Option Strategy

Short call synthetic strangle is a non-directional synthetic option strategy with three legs. It replicates short strangle using a long underlying position and two short call options with different strikes. It has unlimited risk and limited profit potential.

short call synthetic strangle option strategy

Example

Let's say a stock is trading at $74.17. We can set up a short call synthetic strangle as follows:

  • Buy 100 shares of the stock for $74.17 per share.
  • Sell the 70-strike call option for $6.29.
  • Sell the 75-strike call with same expiration for $3.59.

This position has risk profile similar to the 70-75 short strangle (short 70-strike put and short 75-strike call). The call option remains the same, while the 70-strike put option has been replaced by synthetic short put (long underlying and short 70-strike call).

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