Synthetic equivalent
Definition · Level 2 · Long options & hedges
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A combination of stock and/or options that reproduces another position's payoff: any one of stock, call and put can be rebuilt from the other two at one strike and expiry (plus cash borrowed or lent), e.g. long stock + long put ≈ long call.
Example
“Stock plus puts is just a synthetic call — price it against the call.”
Where Tradecraft teaches it
Level 2 · Long options & hedges, in the lesson “Put-call parity and the conversion”: Calls, puts and stock are tied by one equation — and a conversion locks it in.
Related terms
- ArbitrageLocking in a profit, riskless in principle, from a price discrepancy by simultaneously buying the cheap side and selling the rich side of equivalent…
- ConversionLong stock + long put + short call, same strike and expiry.
- Cost of carryNet cost of holding a position over time: financing on the money tied up, plus storage or borrow fees where they apply, minus income such as…
- Early assignmentBeing made to fulfil a short American-style option before expiry because its holder exercised.
- Locked positionA combination whose payoff at expiry is fixed whatever the stock does, such as a conversion or a box; barring early assignment or pin risk, its P&L…
- Put-call parityNo-arbitrage link between European calls and puts with the same strike and expiry: C − P = S − PV(K), minus PV(dividends) on a dividend payer.