Stock replacement
Definition · Level 3 · Spreads & short options
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Holding the same exposure as shares with less cash up front, using options (a deep in-the-money call, or a long call plus short put) instead of the stock.
Example
A synthetic long instead of 100 shares: a 0.50 debit instead of $5,000.
Where Tradecraft teaches it
Level 3 · Spreads & short options, in the lesson “Synthetic stock and what it replaces”: A long call plus a short put as a stand-in for shares: breakeven, carry, and what you give up.
Related terms
- SyntheticBuy a call and sell a put at the same strike.
- Synthetic breakevenFor a long call plus short put at one strike: the strike plus the net debit (or minus the net credit).
- Back-spread danger zoneWhere a back spread loses the most at expiry: the stock sitting at the long strike.
- BodyThe middle strike of a butterfly, short in a long fly: where a long fly earns the most at expiration.
- Breakeven win rateHow often a trade must win just to net zero, treating each outcome as a full win or a full loss: max loss ÷ (max profit + max loss).
- Broken-Wing ButterflyA butterfly with one wing pushed out: buy one call, sell two, and buy one much further away, so the two wings are different widths.