Synthetic Position

A synthetic position is a combination of options and/or futures contracts that replicates the payoff profile of another financial instrument — typically a long or short stock position — without directly buying or selling the underlying asset. The most common examples are a synthetic long stock (buying a call and selling a put at the same strike and expiry), which behaves like holding the underlying stock, and a synthetic short stock (buying a put and selling a call). Synthetic positions are used when direct ownership of the underlying is impractical, expensive, or tax-inefficient, or when leverage and capital efficiency are important. In India's NSE F&O market, synthetic positions are widely used by institutional traders to replicate large equity exposures at a fraction of the capital required to hold the physical shares.