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Stock Exposure for Half the Cost

By:Kai Zeng

Take advantage of synthetic options as a capital-efficient alternative

  • Synthetic strategies provide an effective alternative to stock positions, significantly reducing buying-power requirements and improving win rates.
  • These positions enable traders to modify directional exposure and risk profile more easily than traditional stock holdings.
  • More active position management is essential for synthetic positions because they’re time-sensitive.

Trading stocks usually requires enough upfront capital to create barriers for many investors. Consider buying 100 shares of Amazon at $225 per share: It would require $11,250 in a regular margin account. For small-account traders seeking market exposure without such heavy capital requirements, synthetic options present a compelling alternative.

Synthetic positions use options combinations to create market exposure similar to direct stock ownership. Instead of buying shares outright, traders use options to create equivalent exposure.


stock synthetics


Because options positions are much more flexible than simply long and short stock positions, traders can adjust the deltas on either or both put and call sides to meet their requirements. At minimum, the goal is to collect credit at order entry to avoid losing time value.

At-the-money synthetic positions closely mirror stock positions with a delta of nearly 100, providing almost identical directional sensitivity as owning 100 shares.


AMZN  ATM synthetic position


The probability of profit remains around 50%, similar to stock ownership, and the risk/reward profile maintains a linear relationship that matches stock performance. The key difference is capital efficiency, allowing traders to achieve equivalent exposure with much lower capital requirements. The reduced buying power requirement for Amazon synthetic options is $5,600, about 50% of a long 100 shares position.

Using out-of-the-money options instead can improve the position in several ways.

  • It further reduces the BPR, which is $3,900 for 30-delta options in the Amazon case.
  • OTM synthetics typically have lower delta (75 in this case), which reduces directional risk while still providing meaningful market exposure.


long stock risk profile


  • The probability of profit increases to approximately 65% compared to the 50% chance with ATM options or stock positions.
  • If traders enter the OTM synthetics for a credit rather than paying a debit, it slightly improves risk-adjusted returns.


The trade-off is a different risk profile between the two strikes. It requires the stock to move above the long strike to be profitable at expiration.


synthetic options pros cons


Some important factors need attention when managing synthetic positions:

  • The position delta fluctuates continuously as the stock price moves and time passes, unlike stock positions which have a constant delta of 100 for holding 100 shares.
  • At expiration, the delta becomes either 0 or 100 depending on where the stock closes relative to the strike prices. Traders may need to close or roll positions if the same synthetic position is still needed.


Kai Zengdirector of the research team and head of Chinese content at tastylive, has 20 years of experience in markets and derivatives trading. He cohosts several live shows, including From Theory to Practice and Building Blocks. @kai_zeng1 

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro. 

Trade with a better brokeropen a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies. 


Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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