Synthetic Call Vs. Protective Put
Aren’t these 2 the same?
Both are specified as Long Stock + Long Put. Are there any differences?
Thanks
A clear and personalized study plan is here! Schweser's upgraded content and redesigned study platform are exactly what you need to pass the Level II exam. Save 10% when you preorder a Premium Package for a limited time.
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/