Reverse Conversion Calculator

A reverse conversion is short one hundred shares, a long call and a short put at the same strike and expiry. The long call and short put together replicate a long stock position, so the whole structure is flat: it neither gains nor loses from the stock's direction. What remains is the pricing relationship between the two options and the shares, which is put-call parity.

When it is used

This is an arbitrage structure rather than a directional trade. Professionals use it to capture a mispricing between calls, puts and stock, or to earn interest on the short-sale proceeds when the options price in a different rate. For everyone else it is a teaching position: it shows what a synthetic stock is and makes parity visible.

How it makes and loses money

In theory it makes the interest implied by the option prices and nothing else. In practice early assignment on the short put, dividends on the short shares and borrow costs decide the result, none of which the model includes. Any profit or loss the calculator shows comes from the prices typed for the two options relative to the stock price and the rate in Settings.

What to check in the grid

The grid should be flat across prices on every date, or close to it. If it is not, the typed prices break parity, and the amount by which they break it is the only thing this position earns or loses.