Synthetic Long Stock: Buying Calls and Selling Puts at Same Strike
An investor buys 1 XYZ Jan 50 Call and simultaneously writes 1 XYZ Jan 50 Put at the same expiration. This options combination creates a risk/return profile identical to which of the following positions?
Long Call + Short Put with identical strike and expiration mirrors the exact unlimited upside and downside risk of owning 100 shares of underlying stock (Synthetic Long Stock).
Complete Analysis & Legal Rationale
A synthetic long stock position is created by purchasing a call and writing a put at the same strike price and expiration. If the stock rises, the long call gains dollar-for-dollar like stock. If the stock falls, the short put is exercised against the investor, producing dollar-for-dollar losses like stock. It requires less upfront capital but carries full equity risk.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Long Call + Short Put with identical strike and expiration mirrors the exact unlimited upside and downside risk of owning 100 shares of underlying stock (Synthetic Long Stock).
Fails to reflect correct options pricing/mechanics for B.
Fails to reflect correct options pricing/mechanics for C.
Fails to reflect correct options pricing/mechanics for D.
Official Standard: A synthetic long stock position is created by purchasing a call and writing a put at the same strike price and expiration. If the stock rises, the lon