Synthetic Futures Contract

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DEFINITION of 'Synthetic Futures Contract'

A position created by combining call and put options for the purpose of mimicking the payout schedule and characteristics of a futures contract.

INVESTOPEDIA EXPLAINS 'Synthetic Futures Contract'

A synthetic long futures contract is created by combining long calls and short puts. A synthetic short futures contract is created by combining short calls and long puts. In order for both combinations to be identical to a futures position, the options must have the same expiry dates and strike prices.

RELATED TERMS
  1. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  2. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  3. Put

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

    A financial instrument that is created artificially by simulating ...
  5. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  6. Short (or Short Position)

    1. The sale of a borrowed security, commodity or currency with ...
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