Synthetic Long Stock

Gain exposure to the price movements of a particular stock without actually owning the stock

Descriptions

Synthetic long stock is a financial instrument that allows an investor to gain exposure to the price movements of a particular stock without actually owning the stock. This can be achieved through the use of derivatives such as options contracts. An investor who is synthetically long a stock will typically hold a long call option and a short put option on that stock with the same expiration date and strike price.
The net effect of this position is similar to owning the stock itself, as the investor will profit if the stock price increases and will incur a loss if the stock price decreases. However, the investor does not actually own the stock and therefore does not have voting rights or receive dividends. Additionally, the investor’s potential profit and loss are limited by the strike prices of the options, whereas owning the stock directly allows for unlimited profit potential. Synthetic long stock can be a useful tool for investors who want to gain exposure to the stock market without committing a large amount of capital upfront.

Breakeven

the strike price of the options plus the premium received for selling the put option.

Sweetspot

Stock price goes Up

Max profit

unlimited, as the value of the position, will increase with no upper bound as the underlying stock price increases

Max loss

The potential loss is substantial but is limited to the strike price of the options minus the net credit received