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.