Options 101: Synthetic Stock Positions

An important characteristic of stock options is that they can be combined with other options or underlying contracts to create positions with characteristics which are almost identical to some other contract or combination of contracts.

A synthetic underlying position is an equivalent position that is constructed without actually buying or selling the underlying stock. Instead, call and put options are purchased and sold simultaneously. It's important to note that interest rates, as well as the possibility of early exercise, can cause the delta of a synthetic underlying position to be slightly more or less than 100.