Synthetic Position
Mixing options and the underlying to copy another instrument's payoff — same shape, different building blocks.
Definition
Synthetic position is a combination of options — and sometimes the underlying — that replicates the payoff of a different instrument. A synthetic long (buy a call, sell a put at the same strike and expiry) behaves like a long future; a synthetic short (sell a call, buy a put) behaves like a short future. The idea rests on put-call parity, which links the prices of calls, puts and the underlying.
Formula
- Synthetic long underlying = long call + short put (same strike and expiry).
- Synthetic short underlying = short call + long put (same strike and expiry).
Why it matters
Synthetics let traders recreate an exposure when the direct instrument is costly, restricted, or less liquid, and they are the basis of arbitrage checks like put-call parity. By rearranging the same identity, you can also see that a covered call equals a short put, or that a protective put plus the underlying equals a long call — useful for spotting mispriced legs on the option chain.
Example
With NIFTY at 24,000 you buy the 24,000 call and sell the 24,000 put. As NIFTY rises to 24,200 the position gains about 200 points, and as it falls to 23,800 it loses about 200 — the same point-for-point payoff as holding a long NIFTY future (illustrative, before costs).
See it live
Line up matching call and put strikes on TradePulse's live option chain to construct a synthetic.