Bullish Patterns
Long Calls
Bull Call Spread
Bull Put Spread
Call Backspread
Long Call Ratio Spread
Naked Put
Synthetic Long Stock
The Collar
Covered Calls
Synthetic Long Call
Synthetic Short Put
Covered Straddle
Covered Strangle
Married Put
Protective Put

Bearish Patterns
Long Puts
Bear Put Spread
Bear Call Spread
Put Backspread
Long Put Ratio Spread
Naked Calls
Synthetic Short Stock
Synthetic Short Stock (split strikes)
Covered Put
Protective Call
Synthetic Short Call
Synthetic Long Put

Long Volatility
Long Straddle
Long Strangle
Short Call Butterfly
Short Put Butterfly
Short Iron Butterfly
Short Call Condor
Short Put Condor
Short Iron Condor
Long Guts
Short Call Ladder
Short Put Ladder
Long Call Synthetic Straddle
Long Put Synthetic Straddle

Short Volatility
Short Straddle
Short Strangle
Long Call Butterfly
Long Put Butterfly
Long Iron Butterfly
Long Call Condor
Long Put Condor
Long Iron Condor
Short Guts
Long Call Ladder
Long Put Ladder
Call Ratio Spread
Short Call Ratio Spread
Put Ratio Spread
Short Put Ratio Spread
Ratio Call Write
Ratio Put Write
Short Call Synthetic Straddle
Short Put Synthetic Straddle
Variable Ratio Write

print this page
send to a friend

Short Call Synthetic Straddle

Risk: unlimited
Reward: limited

General Description
Entering a short call synthetic straddle entails selling (2) calls for every 100 shares of stock you own. It's the same as a ratio call write, and its risk profile is identical to a short straddle.

(draw a short call synthetic straddle risk diagram here)

The Thinking
You are long a stock and confident it will trade in a tight range and won't move much from it's current level. To profit from a lack of movement, selling options, which benefit from time decay, is a good route to go. If the stock moves up a little or down a little, you'll profit. It would take a relativley big move for the trade to lose you money.


XYZ is at $55.00. You buy 100 shares of the stock at $55.00 and then sell (2) 55 calls at $4.00 each. The net credit is $8.00, not including the cost of the stock.

If the stock closes at $55 on expiration day, the calls will expire worthless, and your profit will be the net credit received.

If the stock rallies, the profit from the long stock will be countered by the loss from one of the short calls, and the other short call will continue to lose you money point-for-point with the underlying. For example, at $70, the long stock will be posting a $15 gain while the 55 calls will be worth $15 ($11.00 loss per contract). The net is a $7.00 loss.

If the stock drops, the calls will expire worthless, and the long stock position will lose you money point-for-point with the underlying. For example, at $40, the calls will be worthless ($4.00 gain per contract), and the stock will be down $15. The net is a $7.00 loss.

The PL chart below graphically shows where this trade will be profitable and at a loss.