Explain the Concept of "Synthetic Options" and How They Are Constructed Using the Underlying Asset and Other Derivatives ⎊ Path

Explain the Concept of “Synthetic Options” and How They Are Constructed Using the Underlying Asset and Other Derivatives.

A synthetic option is a portfolio of other financial instruments (typically the underlying asset and a derivative like a future or another option) that replicates the payoff profile of a standard option. For example, a synthetic long call can be created by buying the underlying asset and buying a put option.

Synthetic positions are used for arbitrage, to manage risk, or when a specific option is unavailable or illiquiquid.

What Is a “Synthetic” Derivative and How Does TWAP Relate to Its Creation?

Define the Term ‘Synthetic Long’ and How It Relates to Put and Call Options

How Is a ‘Synthetic Long Call’ Constructed Using the Underlying Asset and a Put Option?

Define a ‘Synthetic Option’ and Explain Its Use in Non-Public Trading

How Can a Combination of a Call and a Put Option Be Used to Create a ‘Straddle’ Strategy?

What Is the Principle of “Put-Call Parity” and How Does It Relate to a Synthetic Future?

What Is the Concept of a ‘Synthetic’ Long or Short Position?

Explain the Concept of a “Synthetic Long Stock” Position