hey hello everybody this is Andrew jovoni from option pit.com uh Co and Director of Education and I'm going to talk today a little bit about converting a bught into a synthetic put I see a lot of stuff online that's a little how should we say it um I don't know sketchy so I thought I would do the uh simple equation first uh first thing you want to know is uh put call parity so basically put call parity is just um it's just understanding the option prices relative to where the stock is so you make a a synthetic stock with the options and that way you know where the underlying price is based on where the options are the basic formula for put call parity is this which I'm just going to grab this here okay which is a call whatever the call price is minus whatever the put price is equals the underlying price the stock price s minus whatever the strike is plus the cost of carry which will be the interest rate uh usually when you use the formula you'll come with the interest rate in pennies minus whatever the dividend is so what you get is you get a nice convenient uh formula for trying to figure out you know how to uh see if the option prices look correct relative to where the stock price is now for a synthetic or converting a BuyRight right so your BuyRight is just you buy the stock and then you sell the call so you want to see where that synthetic put would be what price it is so that is just this formula here all you do is some simpler arithmetic and you get this right all I'm doing here is basically for this example I'm assuming the cost of carry is zero so interest rates Min and dividends for now nothing I'll do another video on that later but for now we're just assuming you know this is kind of a quick and dirty thing you're just trying to look at the screen very quickly so if you solve for a p a put you're going to subtract the call from both sides and uh uh uh multiply by minus one all the way through so your put the cost of your synthetic put will be your call Price Plus your strike price minus the stock price so how does that look if you are here we go so let's use this as an example here so palent here I have a let's go out a little bit so let's say I want to buy the stock at 20 20 2 288 okay so we'll get a price here 2288 and then we're going to write the May 24th so I've got here uh the call price is going to be 155 okay plus uh uh the strike price is 24 minus whatever the St the stock price is and I think if I do this Google thing right 267 whoops 267 so that means if you buy stock if you buy the stock at 2288 and you sell the 155 call on the 24 strike you synthetically sold the 24 put in May for 267 and if you see right now where that is trading for is right around 257 so your uh your call your synthetic is priced a little better than where you actually would sell the put at and that's the reason is because the way the cost of carry Works since you're buying stock you're going to have to pay to carry on that stock that's why the synthetic is priced a little better so real simply this way you also you know why you make so much money when you're sell an out- of- the- money call well because that selling that out-of-the money call or creating that uh creating that BuyRight with an outof the- money call just means you're selling an in the money put that's why the dollars look so good when you get taken out on that so again just real simple here you want to convert your buy right into a synthetic put all buy rights buying stock and selling calls is just selling a synthetic put um and if you want more information on this or anything else option related uh go to option pit.com sign up for any one of our classes and check it out all right there it is byebye