What Is a “Synthetic” Position in Options Trading?
A synthetic position is a combination of options and/or the underlying asset that replicates the risk and reward profile of a different position. The concept is based on put-call parity.
For example, a synthetic long stock position can be created by simultaneously buying a call and selling a put at the same strike price and expiration. Traders use synthetic positions to exploit arbitrage opportunities, manage risk, or execute a trading view when one of the component instruments is illiquid or unavailable.
Glossar
Synthetic Long Stock Position
Synthesis ⎊ Synthetic Long Stock Position is constructed by combining a long call option and a short put option with identical strike and expiration parameters, perfectly replicating the payoff profile of owning the underlying asset without direct spot purchase.
Synthetic Position
Construction ⎊ A Synthetic Position refers to a financial portfolio created by combining two or more different financial instruments to replicate the risk-reward profile of a single, distinct instrument.