A Synthetic Covered Call is an options strategy that replicates the payoff profile of a traditional covered call without requiring direct ownership of the underlying asset. It allows an investor to achieve similar risk and reward characteristics through a combination of other derivatives.
Mechanism
This strategy is constructed by holding a long position in a futures contract or a spot position, while simultaneously selling an out-of-the-money call option on the same underlying crypto asset. Alternatively, it can involve buying a put option and selling a call option with identical strike prices and expiration dates. The mechanism aims to simulate the premium collection and capped upside of a standard covered call.
Methodology
The strategic application focuses on generating income or managing risk exposure when direct spot ownership is impractical, inefficient, or subject to specific capital requirements. This methodology offers flexibility in capital deployment and allows for participation in premium collection during range-bound or moderately bullish market conditions, mirroring the protective and income-generating aspects of a traditional covered call.
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