2 Likes
A synthetic call or put is created by using stock and an option, to create the same effect as how it would be if you were to buy a call or a put.
For example, instead of buying a normal call option, you could buy stock and buy puts, both will have unlimited profits and limited losses, hence it is called synthetic (artifically created) call option.
Similarly intead of buying puts, you can short sell a security and buy calls, if you do so it will be called synthetic puts.
2 Likes