Options Glossary

Glossary: Synthetic Stock

Last Updated: July 12, 2015


Synthetic Stock

What Does Synthetic Stock Mean in Options Trading?

Any option strategy whose payoff replicates the payoff of the underlying long stock. For example a short put and a long call is a synthetic stock holding. Even though this straetgy replicates the payoff of the stock, the premium collected from the sale of the put is usually more than the debit from the purchase of the long call. As such, this strategy has an inherent edge to buying the stock and may have more favorable margin terms.

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