Buy call x write a put - what's the difference? - Aussie Stock Forums

# Thread: Buy call x write a put - what's the difference?

1. ## Buy call x write a put - what's the difference?

Hi everyone

I'm a newbie and don't really understand the difference between buy a call and buy a call and write a put... Any help must welcomed.

http://ptgmedia.pearsoncmg.com/image...ks/01fig06.jpg

Thank you!

2. ## Re: Buy call x write a put - what's the difference?

Originally Posted by Mhigasi
Hi everyone

I'm a newbie and don't really understand the difference between buy a call and buy a call and write a put... Any help must welcomed.

http://ptgmedia.pearsoncmg.com/image...ks/01fig06.jpg

Thank you!
Buy a call and write a put of same strike and expiry is a synthetic long stock IOW the position will behave (when all non-transparent considerations accounted for) exactly like you just went out and bought stock.

A straight out bought call is non linear as per the diagram

3. ## Re: Buy call x write a put - what's the difference?

Be careful.
Take a Call Option - limited losses, potentially unlimited gain
-but-
Write a Put Option - limited gain, potentially unlimited losses

4. ## Re: Buy call x write a put - what's the difference?

Originally Posted by Logique
Be careful.
Write a Put Option - limited gain, potentially unlimited losses
Surely this can't be right. If I write a naked put I am guaranteeing that I will buy someone's stock at X price. Even if the price crashes to 0 then I can only lose the exercise price of the option less the credit received for writing the option.

eg - If I write a \$10 put over XYZ company for 50 cents and then have to fulfill the option - then it would cost me \$10 less 50 cents for a total loss of a maximum of \$9.50 (this assumes I can't onsell the share for any amount).

Or am I missing something??

malachii

5. ## Re: Buy call x write a put - what's the difference?

Originally Posted by malachii
Surely this can't be right. If I write a naked put I am guaranteeing that I will buy someone's stock at X price. Even if the price crashes to 0 then I can only lose the exercise price of the option less the credit received for writing the option.

eg - If I write a \$10 put over XYZ company for 50 cents and then have to fulfill the option - then it would cost me \$10 less 50 cents for a total loss of a maximum of \$9.50 (this assumes I can't onsell the share for any amount).

Or am I missing something??

malachii
No

That is absolutely correct

#### Posting Permissions

• You may not post new threads
• You may not post replies
• You may not post attachments
• You may not edit your posts
•
Aussie Stock Forums