Definition
Synthetic Long
A synthetic long replicates owning the underlying by buying a call and selling a put at the same strike.
Buying a call and selling a put at the same strike and expiry produces a payoff almost identical to holding the underlying: you gain rupee-for-rupee as it rises and lose as it falls. It uses less capital than buying the stock or futures outright while behaving the same.
NSE arbitrage desks use synthetic positions to exploit mispricing between options and futures (put-call parity), and traders use a synthetic long when options are more liquid or cheaper than the futures. The risk profile is the same as a futures long, so the same margin discipline applies.
Related terms
- DeltaDelta measures how much an option's premium changes for a ₹1 move in the underlying stock or index.
- Synthetic ShortA synthetic short replicates short-selling the underlying by selling a call and buying a put at the same strike.
- Cost of CarryCost of carry is the net cost of holding an asset to a future date, comprising financing cost less any income, and it determines the fair-value difference between a futures price and the underlying spot price.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.