What Is the Concept of “Synthetic Exposure” Provided by Cash-Settled Derivatives?
Synthetic exposure means gaining the financial benefits (or risks) of holding an asset without actually owning or taking physical possession of it. Cash-settled derivatives allow a trader to profit from the price movement of Bitcoin, for example, without the need for custody, wallets, or managing the physical asset.
Glossar
Synthetic Long Position
Construction ⎊ A Synthetic Long Position is a derivative structure designed to replicate the payoff profile of holding the underlying cryptocurrency asset without actually owning it, typically achieved by combining a long call option and a short put option at the same strike and expiration.
Synthetic Exposure
Exposure ⎊ Synthetic exposure refers to the creation of a payoff profile identical to holding a specific cryptocurrency asset or derivative through a combination of other financial instruments.
Exposure
Volatility ⎊ Exposure, within cryptocurrency and derivatives markets, represents the degree to which an instrument’s value can fluctuate due to shifts in underlying asset prices or implied volatility surfaces.