5.1.1. Synthetic Long Calls and Synthetic Long Puts
So why would an investor combine a long futures contract with a long put instead of simply buying a call? For two reasons: flexibility and cost.
Suppose you pay $0.25 for an at-the-money long soybeans put option, expecting prices to drop. But conditions change, and instead of falling, they begin to rise. Believing this reversal to continue, you decide to liquidate your long put and buy a long call. You sell the put at a loss of $0.15 because it is now well out of the money and because some time erosion has occurred. In addition, you pay $0.20 for an at-the-money call. You also must pay commissions on the two trades.
Alternatively, instead of exchanging the put for the call, you cou