Synthetic Puts& Stocks

A synthetic European Put Option is formed by:

  • buying a european call option

  • shorting the stock

  • buying the discount bond

A synthetic Stock position is formed by:

  • buying a european call option

  • shorting a european put opion

  • buying the discount bond

Question, can’t these synthetic positions be created without buying the discount bond? What is the discounted bond used for to make it theoretically equal to European puts and stocks?


all part of Put Call Parity.

P + S = X + C

Pamela is a sexy X-rated Callgirl

So P = X + C - S

S = X + C - P

  • = Buy, - = Short

hahahaha. great way to remember, however, I’m trying to actually understand the logic.

sort of, yes. All the bond is really doing is being used as a cash management tool to earn a specific rate and expire at a specific time. In theory this could just be a cash deposit with the same payoff, or any other financial instrument with the same profile.

As CPK alluded to, the important thing is to know the formula and why the forumla works. The discount bond is just how “X/(1+r)^t” would be implmented in the real-world (at least a theoretical “real world”…).