Synthetic Covered Call Calculator

SyntheticbullishUndefined Risk

Sell a put to create a payoff similar to a covered call without buying shares upfront.

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What Is a Synthetic Covered Call?

A synthetic covered call reproduces the payoff of a covered call, long stock plus a short call, using a single short put instead. Put-call parity shows why: owning 100 shares and selling a call at a given strike has the same profit and loss profile as selling a put at that strike. Both positions collect premium, both profit if the stock stays above the strike, and both take the full downside if the stock falls.

The advantage is capital and simplicity. A covered call requires roughly $10,000 to buy 100 shares of a $100 stock, then a second transaction to sell the call. The synthetic version is one trade, and the broker requires only margin on the short put, typically 20 percent of the stock value or less. When the put is secured with the full strike price in cash the position is identical to a cash-secured put, so the two names describe the same trade held with different amounts of collateral.

The payoff diagram is a flat plateau at the premium collected above the strike, then a straight line falling dollar for dollar below the strike minus the premium. There is no protection on the downside beyond the credit received, so the risk profile is essentially that of stock ownership with a modest cushion, in exchange for giving up all upside above the strike.

Setup

SELL1x OTM1 PUT

Max Profit

Premium received

Max Loss

Strike price - premium received if stock goes to $0

Breakeven

Strike price - premium received

Synthetic Covered Call Example

XYZ trades at $100 with 35 days to expiration. You sell the $95 put for $2.10, collecting $210. The equivalent covered call would be buying 100 shares at $100 and selling the $95 call for about $7.10, which also yields a maximum profit of $210 and a breakeven of $92.90.

Stock at expiration	Result
$100 or higher	The put expires worthless. You keep the full $210 credit, the maximum profit.
$95	The put expires at the money and worthless. You still keep the full $210. Any finish at or above $95 produces the maximum.
$92.90	Breakeven. The put is $2.10 in the money, exactly offsetting the credit. P&L is $0.
$88	The put is $7.00 in the money. You are assigned 100 shares at $95 that are worth $88, a $700 loss, reduced by the $210 credit to −$490.

Maximum profit is the $210 credit if XYZ finishes at or above $95. Breakeven is $92.90. Below that the loss grows dollar for dollar and would reach $9,290 if the stock went to zero, the same outcome as the covered call built from 100 shares and a $95 call.

When to Use a Synthetic Covered Call

You are neutral to moderately bullish and would be happy to own the stock at the strike price if assigned.
You want covered-call style income but do not want to tie up the full share price, or you want to avoid the two transactions of buying stock and selling a call.
Implied volatility is elevated, so the put premium is rich relative to the downside cushion it provides.
The stock has a support level near the chosen strike and no earnings report or other catalyst before expiration.
Typical entries use 30 to 45 days to expiration and a strike 3 to 8 percent below the stock price, around the 25 to 35 delta, balancing premium against the probability of assignment.

Risks to Understand

Downside is nearly unlimited. If the stock collapses, the loss is the strike minus the premium, and with margin rather than cash behind the put that loss can exceed the collateral you posted.
Upside is capped at the premium. A sharp rally produces no additional gain, which is the same limitation the covered call carries.
Rising implied volatility inflates the short put and produces a mark-to-market loss even if the stock has not fallen, and volatility usually rises exactly when stocks drop.
Early assignment can occur when the put is in the money, especially near expiration, leaving you long 100 shares and needing the capital to hold them.
Unlike the true covered call, you receive no dividends while the position is open, so on high-yield stocks the synthetic gives up income the stock owner would collect.

Managing the Trade

Many traders close the put once it has lost 50 to 70 percent of its value, often within two to three weeks, and redeploy into a new expiration rather than waiting for the last few cents.
If the stock falls toward the strike, the put can be rolled down and out to a later expiration and lower strike, usually for a small additional credit, lowering the effective purchase price.
If you are content to own the shares, allow assignment and then sell calls against the stock, converting the position into a traditional covered call.
Set a stop at roughly two to three times the premium received for cases where you do not want the stock; a put that has tripled in value usually signals a broken thesis.
Avoid holding the short put through earnings unless owning the stock through a gap is acceptable, since the premium rarely compensates for the size of a post-earnings move.

Synthetic Covered Call FAQs

What is a synthetic covered call?: It is a short put used to replicate the payoff of a covered call. By put-call parity, long stock plus a short call at a given strike equals a short put at the same strike, so both positions collect premium, profit when the stock stays above the strike, and lose dollar for dollar below it. The synthetic requires far less capital because you post margin instead of buying shares.
Is a synthetic covered call the same as a cash-secured put?: Structurally yes. Both are a single short put. The difference is collateral: a cash-secured put sets aside the full strike price in cash, while a synthetic covered call on margin posts only a fraction of it. The risk to the trade is identical; the risk to the account is higher when less collateral is held.
How do you calculate the breakeven on a synthetic covered call?: Breakeven is the put strike minus the premium received. Selling a $95 put for $2.10 gives a breakeven of $92.90. Above that price at expiration the trade is profitable, with the maximum profit of $210 reached at any price at or above $95.
Synthetic covered call vs covered call: which is better?: The payoffs are the same, so the choice comes down to capital, dividends, and taxes. The synthetic needs less capital and is one transaction, but it collects no dividends. The traditional covered call requires buying the shares and may qualify the stock for long-term capital gains treatment. Traders who want income without owning shares prefer the synthetic; those who already hold the stock keep the covered call.
What happens if a synthetic covered call is assigned?: You buy 100 shares at the strike price regardless of where the stock is trading. Your effective cost is the strike minus the premium collected, $92.90 in the example. From there you can hold the stock, sell it, or sell a call against it to begin a conventional covered call cycle.
Is selling puts as a synthetic covered call risky?: It carries the full downside of owning the stock below the strike, cushioned only by the premium. The strategy is manageable if you only sell puts on stocks you genuinely want to own at that price and keep enough capital to accept assignment. It becomes dangerous when traders sell more puts than they could afford to have assigned.

Related Strategies

Covered Call Cash-Secured Put Short Put (Naked Put)

What Is a Synthetic Covered Call?

Synthetic Covered Call Example

Stock at expiration	Result
$100 or higher	The put expires worthless. You keep the full $210 credit, the maximum profit.
$95	The put expires at the money and worthless. You still keep the full $210. Any finish at or above $95 produces the maximum.
$92.90	Breakeven. The put is $2.10 in the money, exactly offsetting the credit. P&L is $0.
$88	The put is $7.00 in the money. You are assigned 100 shares at $95 that are worth $88, a $700 loss, reduced by the $210 credit to −$490.

When to Use a Synthetic Covered Call

You are neutral to moderately bullish and would be happy to own the stock at the strike price if assigned.

You want covered-call style income but do not want to tie up the full share price, or you want to avoid the two transactions of buying stock and selling a call.

Implied volatility is elevated, so the put premium is rich relative to the downside cushion it provides.

The stock has a support level near the chosen strike and no earnings report or other catalyst before expiration.

Typical entries use 30 to 45 days to expiration and a strike 3 to 8 percent below the stock price, around the 25 to 35 delta, balancing premium against the probability of assignment.

Risks to Understand

Downside is nearly unlimited. If the stock collapses, the loss is the strike minus the premium, and with margin rather than cash behind the put that loss can exceed the collateral you posted.

Upside is capped at the premium. A sharp rally produces no additional gain, which is the same limitation the covered call carries.

Rising implied volatility inflates the short put and produces a mark-to-market loss even if the stock has not fallen, and volatility usually rises exactly when stocks drop.

Early assignment can occur when the put is in the money, especially near expiration, leaving you long 100 shares and needing the capital to hold them.

Unlike the true covered call, you receive no dividends while the position is open, so on high-yield stocks the synthetic gives up income the stock owner would collect.

Managing the Trade

Many traders close the put once it has lost 50 to 70 percent of its value, often within two to three weeks, and redeploy into a new expiration rather than waiting for the last few cents.

If the stock falls toward the strike, the put can be rolled down and out to a later expiration and lower strike, usually for a small additional credit, lowering the effective purchase price.

If you are content to own the shares, allow assignment and then sell calls against the stock, converting the position into a traditional covered call.

Set a stop at roughly two to three times the premium received for cases where you do not want the stock; a put that has tripled in value usually signals a broken thesis.

Avoid holding the short put through earnings unless owning the stock through a gap is acceptable, since the premium rarely compensates for the size of a post-earnings move.

Synthetic Covered Call FAQs

What is a synthetic covered call?

It is a short put used to replicate the payoff of a covered call. By put-call parity, long stock plus a short call at a given strike equals a short put at the same strike, so both positions collect premium, profit when the stock stays above the strike, and lose dollar for dollar below it. The synthetic requires far less capital because you post margin instead of buying shares.

Is a synthetic covered call the same as a cash-secured put?

Structurally yes. Both are a single short put. The difference is collateral: a cash-secured put sets aside the full strike price in cash, while a synthetic covered call on margin posts only a fraction of it. The risk to the trade is identical; the risk to the account is higher when less collateral is held.

How do you calculate the breakeven on a synthetic covered call?

Breakeven is the put strike minus the premium received. Selling a $95 put for $2.10 gives a breakeven of $92.90. Above that price at expiration the trade is profitable, with the maximum profit of $210 reached at any price at or above $95.

Synthetic covered call vs covered call: which is better?

The payoffs are the same, so the choice comes down to capital, dividends, and taxes. The synthetic needs less capital and is one transaction, but it collects no dividends. The traditional covered call requires buying the shares and may qualify the stock for long-term capital gains treatment. Traders who want income without owning shares prefer the synthetic; those who already hold the stock keep the covered call.

What happens if a synthetic covered call is assigned?

You buy 100 shares at the strike price regardless of where the stock is trading. Your effective cost is the strike minus the premium collected, $92.90 in the example. From there you can hold the stock, sell it, or sell a call against it to begin a conventional covered call cycle.

Is selling puts as a synthetic covered call risky?

It carries the full downside of owning the stock below the strike, cushioned only by the premium. The strategy is manageable if you only sell puts on stocks you genuinely want to own at that price and keep enough capital to accept assignment. It becomes dangerous when traders sell more puts than they could afford to have assigned.