I have the following information:

Call Premium: 0.30
Put Premium: 40.4
Strike: 130
1-Month Risk-Free Rate: 0%
Market Price: $85.00

If I use the Synthetic Long formula I get a price of: $89.90

Synthetic-Long = call - put + X/(1+Rf)^t
Synthetic-Long = 0.30 - 40.4 + 130/[(1+0.00)^(30/360)]
Synthetic-Long = $89.90

This is significantly higher than the market price. If the Investor buys the stock at the market price $85.00 how many options and bonds must they buy/sell?

Shorting the Synthetic would make the formula:

-(Synthetic-Long) = -call + put - X/(1+Rf)^t

Since 1 option contract = 100 shares,

then sell 1 call & buy 1 put, but how much of the bond must they sell? (assuming US treasury, & assuming the Risk-Free Rate is 0%)


closed as off-topic by Bob Jansen Jul 4 '15 at 7:19

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