cancel
Showing results for 
Search instead for 
Did you mean: 
Honored Advisor

Synthetic trade

anyone got a discription of what that is.....?

0 Kudos
6 Replies
Veteran Advisor

Re: Synthetic trade

sw,

i believe it is simply an option trade where one is long & short the same strike/expiry of either a call or put. i don't understand the strategy, however. 

thx, c-x-1

0 Kudos
Senior Contributor

Re: Synthetic trade

when a futures market locks at limit it is derived from how the options are trading.

0 Kudos
Honored Advisor

Re: Synthetic trade

So can a trade be covered by an option, at a premium or fee price by an option even though there is no activity on that "locked" position??

 

In other words a position could still be placed and protected with an option position???

 

Thanks fella's -------------------education is attained with realization of how much I don't know!!

0 Kudos
Veteran Advisor

Re: Synthetic trade

i've heard the phrase before during a lock limit that "the synthetics are trading, say, 5 cents below the limit down price". most strikes in the options do continue to trade at lock limit. only the strikes way in the $ can lock limit, as well.

0 Kudos
Senior Advisor

Re: Synthetic trade

Logic tells me that they are expecting a substantial move one way or the other. They expect the profits on the winning side to exceed the losses on the losing side. Limited losses with no limits on gains.

0 Kudos
Senior Advisor

Re: Synthetic trade

A synthetic trade is any trade where you can't or don't want to make a direct trade so you use other means that have more or less the same result.

 

A put is the option to sell a commodity.  A synthetic put might be selling the futures and buying a call.  You still have a floor locked in and still have upside potential.

 

One reason you might buy a synthetic put is because you leg into it.  That is, you put the positions on at different times.  Suppose you sold Dec corn in March and in June you got to worring about the weather.  You could buy a call (hopefully while it was still cheap) and have the same effect as if you'd just bout a put alone.  But, you would hope you sold the board high and bought the call low (in price).

 

When the board is locked, options trading is still available and they may reflect the intrinsic value of the underlying commodity.

 

 Here's on of several online sources that give financial definitions.

http://www.investopedia.com/dictionary/#axzz26vJtKJXH

0 Kudos