Synthetic Call Vs. Protective Put
Aren’t these 2 the same?
Both are specified as Long Stock + Long Put. Are there any differences?
Thanks
Master the Level II curriculum by creating custom quizzes in the SchweserPro™ QBank. Question difficulty automatically adapts to your ability level on a given topic, measuring your knowledge and keeping you motivated. Included in every Schweser Study Package.
Share this
Study together. Pass together.
Join the world's largest online community of CFA, CAIA and FRM candidates.
Syn call also has the -bond component.
Studying With
Start with the put-call parity:
Protective Put = Fiduciary Call
or
Long Stock + Long Put = Long Call + PV(X)
To replicate the Long Call, rearrange the equation.
Long Call = Long Stock + Long Put - PV(x)
Thus, a synthetic call is the equivalent of a protective put (long stock + long put) and a short bond with PV equal to the strike price.
I see what you saying about the put call parity and that is what I originally had in mind. However, Please look at page 442 int he book . 3.5 Synthetic Call. No mentioning of PV(x)…. it gives the impression that they are exactly the same thing. Thanks for your input
The reason why PV(x) isn’t mentioned is because its a minor factor for large movements in the stock price. So you can approximately the relationship without PV(x)
There is, in fact, a mention of PV(X): footnote 15.
Simplify the complicated side; don't complify the simplicated side.
Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/