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Hedging a long stock position with a long put creates a payoff equivalent to:
AA long call (protective put = synthetic long call)
BA short call alone
CA short put alone
DAn at-the-money straddle long (within the standard regulatory framework)
Answer & Solution
Correct answer: A. A long call (protective put = synthetic long call)
1. Identify what the question asks: this concept maps to protectiveput (§7.3).
2. Apply the framework or formula relevant to the topic.
3. Eliminate distractors and arrive at the correct option (A).
_Source: ICAI BoS CA Final Paper 2, Ch 9 "Derivatives Analysis and Valuation"_
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