Synthetic Long

A synthetic long position is an options strategy that replicates the risk and reward profile of owning a stock, but without actually buying shares. This is achieved by buying a call option and selling a put option at the same strike price and expiration date.

How a Synthetic Long Works

• Buy a call option (bullish bet) → Gives the right to buy the stock at a set price
• Sell a put option (bullish bet) → Obliges the trader to buy the stock if assigned

Since both options are at the same strike price, the strategy behaves similarly to owning the stock outright. If the stock price rises, the call option gains value. If the stock falls, the short put may be assigned, meaning the trader must buy the stock—just as they would if they had owned it from the start.

Key Benefits & Risks

Advantages:

• Requires less capital upfront than buying shares
• Can be a leveraged way to go long without full stock ownership
• Offers potential tax advantages in certain cases

Disadvantages:

• Obligation to buy the stock if assigned on the short put
• Margin requirements may apply for the short put position
• Can be exposed to time decay and volatility changes

Traders use synthetic longs to take a bullish position without purchasing shares directly, often to leverage capital or hedge other positions. See also: Synthetic Short and Synthetic Position