Synthetic Long Stock
The synthetic long stock strategy is a very important strategy to understand. One of the most notable reasons options are so powerful is because of how flexible they can be. The synthetic long stock position is a prime example of this. Synthetic positions, in general, should be mastered if you chose to be a master option trader. Floor traders and professional option traders use synthetics routinely, they;re just as commonly used as standard option positions. Although the synthetic long stock may be a little difficult to understand initially, with a little practice it will become second nature in no time.
Composition
Long one call option and shorting one put option at the same month and same strike price.
Risk/Reward
Max Reward: Unlimited
Max Risk: Unlimited
Characteristics
The synthetic long stock position is used when the investor is bullish on market direction. The synthetic long behaves exactly the same as being long 100 shares of the underlying security. It is a much more cost effective than holding the stock outright.
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