Synthetic Options: Understanding Synthetic Calls & Puts

Through the combined use of multiple financial instruments, experienced traders can maximize their use of margin while establishing a desired trade or position. For those familiar with options contracts, synthetic positions have always been the preferred way of going long or short on a particular asset. However, the sheer complexity of it might scare beginning traders away, given that they can incur unlimited losses. 

Keen on finding out why traders would consider a synthetic long or short position, instead of directly buying or short-selling the asset? From understanding the rationale for a synthetic options trade to explaining how to do it as a step-by-step process, here's everything you need to know when exploring synthetic options strategies with Bybit.

Key Takeaways:

• “Synthetic options” refers to the prudent use of options and the underlying asset to recreate the risk and reward of a particular options position.
• A synthetic call is a type of financial instrument that involves a combination of a long stock position with a long put option. This creates a pseudo-long call option. 
• A synthetic put involves combining a short stock position with a long call option on that same stock to mimic the essence of a long put option. 

What Are Synthetic Options?