Synthetic Long Stock

The catch is risk, not cost. Zero cost to enter doesn't mean risk-free. You have unlimited downside risk - if stock drops 50%, you lose 50% of notional value. The 'zero cost' refers only to premium outlay.

No. Since you don't own actual shares, you don't receive dividends. This is a key difference from stock ownership. For high-dividend stocks, this can be a significant cost.

If stock is above strike: your call is ITM (valuable), your short put is OTM (expires worthless). You can sell the call for profit or exercise it to buy shares. Usually selling is better.

If stock is below strike: your call is OTM (expires worthless), your short put is ITM (will be assigned). You'll be forced to buy 100 shares at the strike price, even though they're worth less. This is your loss.

TFSAs don't allow margin trading, and the short put in a synthetic requires margin (it's a naked option). Same for RRSPs. You need a margin account with Level 3-4 approval for synthetics.

Close the current month (buy back short put, sell long call), then open the new month (sell new put, buy new call). Usually costs a small debit to roll because you're buying more time value.

If assigned, you buy 100 shares at the strike price. You now own stock plus your long call (essentially a married put position). You can: hold the stock, sell the stock and reconstruct synthetic, or sell the call too.

Synthetic typically requires ~20-25% of notional value in margin (for the naked put). Buying stock requires 100% (cash) or 50% (on margin). Synthetic is significantly more capital efficient.

ATM is standard - it gives exactly 1.00 delta and usually zero cost. Slightly ITM call side costs money but has lower put assignment risk. Slightly OTM call side may generate credit but has higher put assignment risk.

Roll costs are typically $0.10-$0.50 per roll, or roughly $0.40-$2.00 annually. Compare to the stock's dividend yield. For low-yield stocks, synthetic is usually cheaper. For high-yield stocks (>4%), actual stock may be better.

Add synthetic short positions to reduce portfolio delta. For example, if long 500 shares and want to reduce to 300, add 2 synthetic shorts (-200 delta). Faster and more capital efficient than selling stock.

Conversion: Long stock + synthetic short = risk-free if mispriced. Reversal: Short stock + synthetic long = opposite direction. These are used by market makers to enforce put-call parity. Rarely profitable for retail after costs.

Sum all synthetic notional values (strike × 100) plus actual stock positions. This is your total delta exposure. Set limits (e.g., max 2× portfolio value) and monitor daily. Remember synthetics are leveraged.

Split-strike (different strikes for call and put) creates a buffer zone. Use when slightly bullish but want flexibility - neither option exercises if stock stays between strikes. Costs money to enter but provides range.

Before ex-dividend, puts become slightly more expensive (reflecting upcoming dividend). Synthetic long may cost small debit around ex-dates. Put may also be assigned early for dividend capture. Adjust positioning around ex-dates.