How Can a Synthetic Long or Short Position Be Created Using Options to Hedge against Valuation Risk?

A synthetic long position, which mimics owning the underlying token, can be created by buying a call option and selling a put option with the same strike price and expiration date. A synthetic short position is the reverse.

These synthetic positions can be used to hedge against the risk that the investor's intrinsic value assessment is wrong. For instance, an investor confident in a high intrinsic value can buy a synthetic long to gain exposure while potentially limiting capital outlay, or use options to hedge an existing token holding.