A synthetic option that is based on a long position in the underlying asset and a long position in a put option on the same asset. In other words, establishing a synthetic call involves spreading a long stock position (stock owned) with the purchase of at-the-money or slightly out-of-the-money puts. The strike price of the puts should be equal to, or slightly lower than, the current underlying price.

The holder of this position should be mindful enough to allow for adequate time before the expiration date of the options, in order to slow the time decay on the long puts. The following example illustrates how a synthetic call is constructed. Assume the shares of company XYZ are trading for $100 on June 1, 2011, and an investor is short 100 shares. The investor would need to buy one August 2011 $99 put with a strike price very close to the stock price.

Generally, synthetic calls can be classified as synthetic long calls and synthetic short calls.