Synthetic Covered Call¶
A synthetic covered call replicates the payoff of owning 100 shares of stock and selling one call option against them, using a long call and a short put at the same strike price and expiration. The combination produces the same risk/reward profile as a traditional covered call without requiring full capital outlay for the underlying shares. The strategy is grounded in put-call parity, which mathematically links call prices, put prices, and the underlying stock price.
HOW IT WORKS¶
The position has two legs: buy a call at strike K and sell a put at the same strike K and expiration T. The net cost is the difference between the call and put premiums — a debit if the call is more expensive, a credit if the put premium is higher. At expiration, the payoff simplifies to S_T − K, identical to stock ownership at cost K. Upside above the strike is theoretically unlimited through the long call; downside mirrors stock ownership because the short put obligates you to buy shares at K if the stock falls below it. The short put also carries early assignment risk and a margin requirement roughly equal to the strike price minus any credit received.
IN TAPEBOARD¶
In the Tapeboard terminal, traders can build a synthetic covered call by combining a long call and a short put leg on the strategy builder and selecting the same strike and expiration for both. The payoff diagram updates in real time to confirm the position matches a covered call structure before order entry. Tapeboard displays the net debit or credit, estimated margin requirement, and breakeven price side by side so traders can compare the synthetic version against an equivalent traditional covered call on the same underlying.