Synthetic Long

Market Terms

We don't know everything about the markets.  We're just devoted to learners.  Taken from those smarter than ourselves, here's how we define Synthetic Long.

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.