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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
Strip
Strap
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

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Synthetic Long Put

Risk: limited
Reward: limited but very big

General Description
Entering a synthetic long put entails buying calls against a stock you are short. Protective call is a type of synthetic long put.

(draw a synthetic long put risk diagram here)

The Thinking
You're short a stock, but in the near term you believe a bounce is coming. Instead of covering your short with intentions of re-shorting at a higher level (may have negative tax consequences), you buy calls to make a few bucks on the bounce. If the stock rallies, you make a few bucks to cover the loss from your short stock position. If the stock drops, you'll still get to participate.

Example
XYZ is at $42. You've been short 1000 shares of XYZ and want to remain short, but your analysis says an oversold bounce is coming. With the goal of making a few bucks on a bounce to buffer the paper loss you’ll incur by staying short you buy (10) 45 calls for $1.50 each.

Below $45, the calls expire worthless and are nothing more than unused insurance.

Above $45, your loss with the stock will be offset by a gain in the calls. For example, if XYZ rallies to $55, you’ll have a $13.00 paper loss on the stock (relative to $42), and an $8.50 gain on the calls (you bought them for $1.50, now they’re worth $10). The net is a $4.50 loss – better than a $13.00 loss.

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