Synthetic Underlying
A synthetic underlying position is an equivalent position that is constructed without actually buying or selling the underlying security. Instead, call and put options are purchased and sold simultaneously.
Synthetic Stock Positions
Created using stock options, the synthetic long stock simulates the payoff of the long stock position while the synthetic short stock has the risk/reward profile of the short stock position.
Synthetic Futures Positions
Constructed using options on futures, the synthetic long futures has the same payoff as the long futures position while the synthetic short futures has the same risk/reward profile as that of the short futures position.
