Can a Box Spread Be Used to Create a Synthetic Loan or Deposit?
Yes, a box spread can be used to create a synthetic loan or deposit. A long box spread (buying the lower strike synthetic future and selling the higher strike synthetic future) is equivalent to taking out a loan.
The trader receives cash upfront (the premium difference) and pays a fixed amount at expiration. A short box spread (selling the lower strike synthetic future and buying the higher strike synthetic future) is equivalent to making a deposit, where the trader pays cash upfront and receives a fixed amount at expiration.
Glossar
Box Spread
Arbitrage ⎊ A box spread is fundamentally an arbitrage strategy, constructed by simultaneously buying a bull call spread and selling a bear put spread with identical strike prices and expiration dates.
Synthetic Future
Derivation ⎊ Synthetic Futures, within cryptocurrency markets, represent synthetically created assets mirroring the price exposure of underlying assets ⎊ typically cryptocurrencies ⎊ without requiring direct ownership of those assets.
Cash Flow at Initiation
Valuation ⎊ Cash Flow at Initiation, within cryptocurrency options and financial derivatives, represents the initial net cash outlay or inflow required to establish a position, factoring in premium payments, collateral deposits, and any upfront funding costs.