What is a Synthetic Long in Options?

A Synthetic Long is an options position designed to have a payoff similar to “holding” the underlying asset or a long futures position. Generally, it is created by buying a call and selling a put with the same strike price and expiry.

Synthetic Long vs Futures in India

Suppose NIFTY is at 25,000. A trader “buys” 25,000 Call and “sells” 25,000 Put for the same expiry dates. Now, since both options have the same strike price + expiry, the combined position has a payoff similar to a long NIFTY futures position at expiry, subject to premiums, pricing differences, costs, and contract specifications.

The primary difference? A synthetic long consists of two option positions. Consequently, the short put creates a margin obligation and exposes the position to option-related risks.

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