This segment examines synthetic positions, and explains how they can be used to trade less than 100 shares of stock.

An example comparing a long stock position to a synthetic position in the SPY was displayed. The example showed the advantage of the amount of capital required for the synthetic position. A table of the synthetic components using at-the-money (ATM) calls and puts was displayed. The table showed how to synthetically replicate a long stock and a short stock position.

By combining stock and option positions we can create synthetic long and short options. A table of how to replicate synthetic straddles using stock and options was shown. Tom and Tony also discussed the pros and cons of using synthetics.

Odd-lot positions (less than 100 shares) can be created by using the option’s delta. To create a synthetic equivalent of buying 50 shares, we could buy an OTM 25 delta call, and sell an OTM 25 delta put. The example included the deltas, and the breakeven at expiration.

Watch this segment of “Options Jive” with Tom Sosnoff and Tony Battista for the takeaways and a better understanding of how to use synthetics to replace stock positions, even for less than 100 shares.