Gordon Scott has been an active investor and technical analyst or 20+ years. He is a Chartered Market Technician (CMT). Options are touted as one of the most common ways to profit from market swings.
The effects of implied volatility are somewhat muted in a synthetic long, since you're simultaneously long and short two options at the same strike. However, if the call moves into the money ...
To build a synthetic short spread ... Since you're short a call option, the maximum risk on this trade is theoretically unlimited -- making a rally above the call strike your worst-case scenario.
Synthetic shares are financial instruments — usually a combination of put and call options — that traders use to create a similar payout to an underlying stock. Creating a synthetic stock ...