What if you could get all the benefits of owning stock without actually buying shares? A synthetic long stock position lets you do exactly that using options. This strategy is popular among experienced traders who want stock-like exposure with less capital. In this guide, we will show you how it works and when to use it.
What is a Synthetic Long Stock?
A synthetic long stock is an options strategy that mimics owning 100 shares of stock. You create it by buying a call option and selling a put option at the same strike price and expiration. The combined position behaves almost identically to owning the actual shares.
The simple version: Instead of buying 100 shares, you buy a call and sell a put at the same strike. Your profit and loss will match what you would have made owning the stock.
How to Create a Synthetic Long Stock
The setup requires two options at the same strike price and expiration:
- Buy 1 ATM call option
- Sell 1 ATM put option
Example
Stock ABC is trading at $100. You want stock exposure without buying shares.
- Buy 1 $100 call for $4.50
- Sell 1 $100 put for $4.30
- Net cost: $0.20 debit ($20 per position)
This position now moves dollar-for-dollar with the stock price.
Why Use Synthetic Long Instead of Buying Stock?
There are several compelling reasons to choose this strategy:
- Less capital required: You need far less money upfront than buying 100 shares
- Leverage: Control the same number of shares with a fraction of the investment
- No borrowing costs: Useful when shares are hard to borrow or have high borrow rates
- Flexibility: Easy to adjust or close the position at any time
Profit and Loss Analysis
Let us examine what happens as the stock price moves:
If the Stock Rises to $120
- Your call is worth $20 (intrinsic value)
- Your short put expires worthless
- Profit: $20 - $0.20 net cost = $19.80 per share ($1,980)
- Same as if you had bought shares at $100 and sold at $120
If the Stock Falls to $80
- Your call expires worthless
- Your short put has $20 of intrinsic value against you
- Loss: $20 + $0.20 net cost = $20.20 per share ($2,020)
- Same as if you had bought shares at $100 and they dropped to $80
If the Stock Stays at $100
- Both options expire at-the-money
- You lose only the $0.20 net debit ($20)
Understanding the Greeks
A synthetic long stock has unique Greek characteristics:
- Delta: Approximately +100 (same as owning 100 shares)
- Gamma: Near zero because the call and put gamma offset each other
- Theta: Minimal because time decay on the call and put largely cancel out
- Vega: Near zero as the long call and short put vega offset
Capital Efficiency Comparison
Here is why traders love synthetic positions for capital efficiency:
Capital Comparison
Stock trading at $100:
- Buying 100 shares: $10,000 capital required
- Synthetic long stock: Approximately $1,000-2,000 margin requirement
You get the same profit potential with 80-90% less capital tied up.
Risks of Synthetic Long Stock
This strategy is not without risks:
- Unlimited downside risk: Like owning stock, you can lose money all the way to zero
- Assignment risk: The short put can be assigned early, forcing you to buy shares
- Margin requirements: Brokers require margin for the short put
- No dividends: You do not receive dividends like actual shareholders
When to Use This Strategy
Synthetic long stock works best when:
- You are bullish on a stock but want to preserve capital
- You want leverage without margin interest on stock loans
- The stock has no or low dividends so you are not missing income
- You need temporary stock exposure for a specific time period
Adjusting Your Position
One advantage of synthetic positions is how easily you can modify them:
- To reduce risk: Buy back the short put and keep the long call
- To take profits: Close both legs when the stock has moved in your favor
- To roll forward: Close current position and open at a later expiration
- To convert to a spread: Buy a put at a lower strike to limit downside
Synthetic Long vs LEAPS Calls
Traders often compare synthetic positions to long-dated calls (LEAPS):
- Delta: Synthetic has 100 delta; LEAPS has 60-80 delta
- Time decay: Synthetic has minimal theta; LEAPS loses value daily
- Cost: Synthetic is often cheaper or even a small credit; LEAPS requires premium
- Downside: Synthetic has full downside risk; LEAPS limits loss to premium paid
Track Your Synthetic Positions
Pro Trader Dashboard tracks multi-leg options strategies and shows you real-time Greeks, profit targets, and portfolio exposure all in one place.
Summary
A synthetic long stock position lets you replicate stock ownership using options. By buying a call and selling a put at the same strike, you create a position that moves dollar-for-dollar with the underlying stock. This strategy offers capital efficiency and leverage but comes with full downside risk and potential assignment. Use it when you are bullish and want stock exposure without committing all your capital to shares.
Want to learn the opposite strategy? Check out our guide on synthetic short stock or explore collar strategies for protected stock positions.