The Bible of Options Strategies: The Definitive Guide for Practical Trading Strategies, Second Edition

7. Synthetic Strategies

Introduction

Synthetic strategies are generally those that attempt to mimic other stock, futures, or options strategies and use other securities to create the new strategy. As such, you can re-create the underlying asset synthetically using only options. You can re-create long and short positions for straddles by using a combination of buying and selling stocks and options together. You can re-create the same risk profile shape as a long call or long put by combining other assets together. Often, these synthetic strategies come into being when you’re looking to repair an existing strategy.

In this chapter, we’ll cover the long and short synthetic straddles, which mimic those that we discussed in Chapter 4, “Volatility ...