An option strategy that is equivalent to the underlying stock. A long call and a short put is synthetic long stock. A long put and a short call is sythetic short stock.
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A position in which one owns a call option and has sold a put option on the same underlying asset, which is a stock. A synthetic stock acts like a stock because both open the investor to theoretically unlimited gains and losses depending on the price movements of the stock. Because of this, a synthetic stock is taxed like a regular stock.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
The purchase of a call and simultaneous sale of a put on the same stock. This combination produces unlimited potential gains if the stock rises but unlimited potential losses if the stock falls—the same results as if the stock were owned.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.