Synthetic Long Position

A synthetic long position is a combination of a long call and a short put.

Often the call is ITM and the put is OTM. Generally, this pair is comprised of equal contracts for each, and they combine for a 1.00 delta position (or very close to it).

With a synthetic long position, a decline in the underlying stock will result in a point-for-point loss to the synthetic long position, and a rise in the underlying stock will result in a point-for-point gain to the synthetic long position.

A synthetic long position is a bullish option strategy, also called a stock replacement strategy in lieu of buying shares of the underlying stock.  This strategy utilizes less buying power, but also is limited in duration due to the expiration date on the options.

Synthetic Call – A synthetic call is the combination of long stock and a long put.

Synthetic Put – A synthetic put is the combination of short stock and a long call.

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