List of Synthetics

Discussion in 'Options' started by thecoder, Aug 25, 2020.

  1. thecoder

    thecoder

    List of Synthetics
    (A synthetic position is a way to create the payoff of a financial instrument using other financial instruments)
    Code:
    Legend:
  LS: Long Stock
  SS: Short Stock
  LC: Long Call
  SC: Short Call
  LP: Long Put
  SP: Short Put

Combinations to build Synthetics:
  LS + SS = (neutral nonsense)
  LS + LC = (like a LS #1)
  LS + SC = SP
  LS + LP = LC
  LS + SP = (like a LS #2)

  SS + LC = LP
  SS + SC = (like a SS #1)
  SS + LP = (like a SS #2)
  SS + SP = SC

  LC + SC = (neutral nonsense)
  LC + LP = (like a "V", ie. a Long Straddle)
  LC + SP = LS     BUT: this is even a free lunch! :)

  SC + LP = SS     BUT: this is even a free lunch! :)
  SC + SP = (like an "A", ie a Short Straddle; inverse of "LC + LP" Long Straddle)

  LP + SP = (neutral nonsense)
---
total 15 combinations

s.a.
https://tickertape.tdameritrade.com/trading/synthetic-options-strategies-15457
https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/synthetic-options/
https://en.wikipedia.org/wiki/Straddle
     
    #1     Aug 25, 2020
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  2. guru

    guru

    And?
    Btw, this list seems wrong and useless.
    Missing box spread, risk reversal, conversion. So people without this list know more than people with this list. Please don’t give it to anyone to not make people dumb...
     
    #2     Aug 25, 2020
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  3. thecoder

    thecoder

    And what exactly in this list is wrong according to you?
    It was just a beginning... so awaiting also your contribution, what about it? :)
     
    #3     Aug 25, 2020
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  4. BMK

    BMK

    The synthetic positions actually follow the basic rules of algebra.

    The core equation is     C - P = S.
    (long call and short put is equivalent to long stock)

    Everything else can be deduced from this using simple algebraic operations.

    For example:

    Add P to both sides of the equation, and you get

    C = S + P

    which means that if you are long the stock and long the put, that is equivalent to a long call.

    All of the synthetic positions can be derived from these basic equations.

    I'll give one more example:

    From the original equation, subtract C from both sides, and you get

    - P = S - C

    which means that if you are long the stock and short the call, that is equivalent to a short put.

    BMK
     
    Last edited: Aug 25, 2020
    #4     Aug 25, 2020
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    ffs1001 and thecoder like this.
  5. thecoder

    thecoder

    @BMK, nice trick, thx! :)
     
    #5     Aug 25, 2020
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  6. guru

    guru


    I didn't know it was just a beginning so how can anyone else know this when you didn't state this?
    It looked more like "I @thecoder am the smartest and I'm publishing the full list of synthetics.".


    My previous post answers this question.
    There are also plenty of books on options that you should read. The Bible of Options Strategies has a good list of options strategies.
     
    #6     Aug 25, 2020
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  7. thecoder

    thecoder

    @guru, maybe you should make some holidays, rest in peace, man... :)
     
    #7     Aug 25, 2020
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  8. thecoder

    thecoder

    #8     Aug 25, 2020
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