Synthetic

AAA

DEFINITION of 'Synthetic'

A financial instrument that is created artificially by simulating another instrument with the combined features of a collection of other assets.

INVESTOPEDIA EXPLAINS 'Synthetic'

For example, you can create a synthetic stock by purchasing a call option and simultaneously selling a put option on the same stock. The synthetic stock would have the same capital-gain potential as the underlying security.

RELATED TERMS
  1. Bifurcation

    The splitting of a larger whole or main body into two smaller ...
  2. Underlying

    1. In derivatives, the security that must be delivered when a ...
  3. Put

    An option contract giving the owner the right, but not the obligation, ...
  4. Synthetic Lease

    An operating lease that is structured in a way so that it is ...
  5. Constant Proportion Debt Obligation ...

    A type of synthetic collateralized debt instrument that is backed ...
  6. Call

    1. The period of time between the opening and closing of some ...
Related Articles
  1. Put-Call Parity And Arbitrage Opportunity
    Options & Futures

    Put-Call Parity And Arbitrage Opportunity

  2. Options Basics Tutorial
    Options & Futures

    Options Basics Tutorial

  3. Principal-Protected Notes: Hedge Funds ...
    Options & Futures

    Principal-Protected Notes: Hedge Funds ...

  4. Going Long On Calls
    Options & Futures

    Going Long On Calls

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center