Synthetic position
A combination of options and the underlying that reproduces the payoff of another position.
How to read the number
Useful where the instrument itself is unavailable: a bought call together with a sold put at the same strike gives the same outcome as a long futures position.
When the metric lies
The payoff matches at expiry, the path to it does not. A synthetic carries its own collateral, its own commissions and its own sensitivity to volatility along the way.
Also known as: synthetic long