Ask the Institute

Ask the Institute Archive

DATE: January 22, 2013

QUESTION:

Can you discuss the concept of a synthetic position?

ANSWER:
In options trading, a synthetic position is a two-part position that has the exact same risk and profit potential of a different one-part position. Long and short call positions and long and short put positions each have at least one synthetically equivalent position. There are also synthetic positions for long and short stock. To understand how an investor might construct a synthetic position of one of the most basic strategies, buying stock, view this week's segment of "Ask the Institute."

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