Symbotic stock is pulling back toward its 21-day moving average but had a nice bounce off its lows Tuesday. So let's look at using options to create a synthetic long position for a fraction of the cost of buying shares.
A split-strike synthetic trade is a way of taking a similar long exposure on a stock without having to put up much capital other than a small amount of option premium and the margin requirement, which we'll get to shortly. The strategy is constructed by selling an out-of-the-money put and buying an out-of-the-money call.
Let's look at how we might set up such a trade on Symbotic, a maker of robotic technology used in warehouses.
Assuming you wanted a bullish exposure via a synthetic long, you could buy a November 57.50 call for around 9.25 a share and then finance that purchase by selling a November 50 put for around 9.75 a share. Therefore, a November split-strike synthetic trade would result in a net credit of around 50 cents a share, or $50 per 100-share contract.
Exposure Similar To Owning Shares
As the name suggests, this is a synthetic position, and you would have a similar exposure to owning 100 shares of the underlying stock. That exposure would cost about $5,250 if you bought 100 shares this morning.
So, this is effectively a leveraged position and may not be appropriate for every trader. Even though the option trade results in a credit of $50, you could still lose $4,950 if Symbotic went to zero.
This split-strike synthetic trade produces a similar exposure to owning 100 shares for a lower cost. In this example, the total position delta is around 90, giving you an exposure equivalent to being long on 90 shares of Symbotic stock. Of course, leverage is a double-edged sword, and a falling stock price will magnify losses.
At expiration, we have a few scenarios. First, if the stock is between 50 and 57.50, both options expire worthless. The profit is equal to the credit received of $50. Second, if the stock rises above 57.50, the long call makes profits unlimited. And third, if the stock is below 50, expect to be assigned the stock; losses will accrue at the same rate as stock ownership.
Symbotic Stock: Possible Earnings Concerns
Split-strike synthetics are an advanced option trade, so make sure you understand how they work before considering such a move. Also, Symbotic is due to report results Aug. 6, so the trade would have earnings exposure if held through that date.
According to Investor's Business Daily's IBD Stock Checkup, Symbotic stock ranks No. 12 in its group. It has a Composite Rating of 84, an Earnings Per Share Rating of 34 and a Relative Strength Rating of 97.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
