chapter 10Synthetic Long Option Plays
A synthetic position is any financial instrument that is artificially created by using a combination of other assets whose features, as a whole, are comparable to the instrument that it is designed to replicate. For example, a trader can mimic the payout of a call option by simultaneously going long a futures contract and buying a put option. Likewise, the payout of a put option can be duplicated by selling a futures contract and buying a call option.
Why Use Synthetic Positions?
Synthetic options allow traders to easily adjust their trade should the market go against their original assessment. This makes perfect sense. If you are long a put option and long a futures contract in a falling ...
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