Description:
This sideways strategy (which is the same as a short straddle with the put replaced by a synthetic put) amounts to buying stock and selling two ATM (or the nearest OTM) call options with a strike price K. The trader’s outlook is neutral. This is a capital gain strategy.
S0 ≤ K
Understanding the Short Call Synthetic Straddle
The short call synthetic straddle is a non-directional strategy that replaces the short put from a traditional short straddle with a synthetic short put. This strategy involves a long position in the underlying asset and selling two call options. The synthetic straddle replicates the same risk and reward profile as a regular short straddle but is achieved using different instruments. In this strategy, you establish a net credit position by receiving premiums from the two sold call options. The strategy’s structure is:
Long 100 shares of the underlying asset