A strategy for options trading designed to imitate a long stock position. A synthetic long stock is created by purchasing at-the-money calls and then selling an equivalent number of at-the-money puts with the same expiration date. The downside of a synthetic long position is the unlimited amount of risk it is capable of creating (though the opposite is also true in that there is a potential for unlimited gain). A synthetic position is also favorable for traders looking to trade without losing all liquidity by tying up all their investment capital in the purchase of shares outright. A synthetic long position can be entered into with a small amount of capital as the cost of the call options is partially offset by the profit from selling put options.
Synthetic Long
Market Terms
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