What is a Synthetic Call? Definition, Construction, and Example
A synthetic call is an options position that replicates the payoff of a long call option by combining a long stock position with a long put option at the same strike price and expiration date.
What is a synthetic call?
A synthetic call is an options strategy that replicates the risk and reward profile of a long call option using two different instruments. The standard construction is a long stock position plus a long put option at the same strike price and expiration date. The payoff of this combination is identical to a long call at that same strike and expiration, minus the cost of the put premium. The synthetic call is a direct application of put-call parity, which states that a long stock plus a long put equals a long call plus cash.
How is a synthetic call constructed?
The formula for the synthetic call is:
Synthetic Long Call = Long Stock + Long Put
At expiration, if the stock price (S) is above the strike price (K), the put expires worthless, and the trader's profit is S - K - (put premium paid). If the stock price is below the strike, the put is exercised, and the trader sells the stock at K, losing only the put premium. This is the same payoff as a long call.
The trader selects the strike price and expiration based on the desired exposure. The net cost of the synthetic call is the stock price plus the put premium. The breakeven price at expiration is the stock purchase price plus the put premium. The maximum loss is the put premium paid. The maximum gain is unlimited.
The trader can also construct a synthetic call using options only: a long call plus a short put at the same strike and expiration replicates a long stock position, and adding a long put creates the synthetic call. This is less common because it introduces assignment risk on the short put.
Worked example
On August 15, 2026, NVDA trades at $180.00. A trader wants to create a synthetic call with a $180 strike and September expiration. The $180 put with September expiration trades at $4.50. The trader buys 100 shares of NVDA at $180.00 ($18,000) and buys one $180 put at $4.50 ($450). The total cost is $18,450.
At expiration, if NVDA trades at $200, the put expires worthless. The trader's stock position is worth $20,000. The profit is $20,000 - $18,450 = $1,550. If NVDA trades at $170, the put is exercised, and the trader sells the stock at $180. The trader loses the put premium of $450. The maximum loss is $450, and the maximum gain is unlimited. The breakeven price is $184.50.
When traders use synthetic calls
Traders use synthetic calls when they want the upside of a call option but prefer the liquidity or tax treatment of stock. Buying stock plus a put can be cheaper than buying a call if the put is undervalued relative to the call. Traders also use synthetic calls to avoid the time decay of a long call — the stock component does not decay, and the put's time decay is offset by the stock's directional exposure. The strategy is also used to repair an existing stock position: a trader holding a losing stock position buys a put to cap further downside, converting the position into a synthetic call.
Limitations and common misconceptions
The synthetic call requires more capital than a long call. The trader must purchase the full stock position, which ties up cash and creates a margin requirement. The strategy also has different tax treatment: the stock component creates a capital gain or loss on the stock itself, while a long call is a single options position. A common misconception is that the synthetic call eliminates downside risk. It does not — the trader loses the entire put premium if the stock stays above the strike at expiration. The synthetic call also introduces early assignment risk on the put if the put is deep in-the-money and the trader does not close the position before expiration.