Investment Type: Debit
Strike Prices: Near The Money strike price for both legs
Expiration Month: current month for both legs
Composition: Sell Put + Buy Call

 
  Long Synthetic Future Profile Chart  
 

 
Description:

 

Long Synthetic Future acts perfectly like Long Future. It’s actually a long combo but with the same strike price. This is a more economical way to trade long future. If we get a credit from the trade, we even have “cushion” for our breakeven point. Time decay is always the case that we need to be aware of when trading options.

 
  Example  
 

 

Entry:


Maximum Initial Investment = $5,000 (or based on 5% money management rule)

Stock Price :
$34.00
   
Buy/Sell :
Sell
    
Strike Price :
35 Put
 } Premium: $1.70
Expiration Date :
December
No of Contracts :
50
    

 

Stock Price :
$34.00
   
Buy/Sell :
Buy
    
Strike Price :
35 Call
 } Premium: $0.80
Expiration Date :
December
No of Contracts :
50
    

 

Investment @ Entry = (Premium of Bought Leg x No of Contracts x 100 Shares) + (Premium of Sold Leg x No of Contracts x 100 Shares) = $4,000 + ($8,500) = Credit ($4,500)

 

Breakeven Point = Strike Price - Net Credit = $35.00 - $0.90 = $34.10

 

Exit:

Best Case Scenario:

Stock Price :
$37.50 up $3.50
    
Buy/Sell :
Sell
    
Strike Price :
35 Put
 } Premium: $0.00
Expiration Date :
December

 

Stock Price :
$37.50 up $3.50
    
Buy/Sell :
Buy
    
Strike Price :
35 Call
 } Premium: $2.50
Expiration Date :
December

 

Profit @ Exit = (Premium of Bought Leg x No of Contracts x 100 Shares) + (Premium of Sold Leg x No of Contracts x 100 Shares) - Investment @ Entry = $ 12,500 + $0 – ($4,500) = $17,000

 

Return of Investment = Profit @ Exit / Investment @ Entry = 378%

 

Worst Case Scenario : Unlimited Loss

 

Stock Price
Profit/Loss
ROI
30.00
-20500
-456%
32.50
-8000
-178%
35.00
4500
100%
37.50
17000
378%
40.00
29500
656%