Synthetic position (original) (raw)

In finance, a synthetic position is a way to create the payoff of a financial instrument using other financial instruments. A synthetic position can be created by buying or selling the underlying financial instruments and/or derivatives. If several instruments which have the same payoff as investing in a share are bought, there is a synthetic underlying position. In a similar way, a synthetic option position can be created. When the underlying asset is a stock, a synthetic underlying position is sometimes called a synthetic stock.