Synthetic future?

How to construct a synthetic future using options

This fundamental options-theory question tests whether you understand put-call parity and how to use it to synthesize a forward or futures position from vanilla options. It is a mainstay of volatility trading and exotic-option desks, where the ability to decompose and reconstruct payoffs is essential.

The core insight is that a specific combination of options—chosen at a particular strike—replicates the payoff of a linear, leveraged position in the underlying. The question requires you to reason about expiry payoffs, identify which strikes and option types to use, and confirm the replication holds across all price scenarios.

• Put-call parity and its rearrangements
• Synthetic long and short positions
• Cost-of-carry and dividend treatment
• Strike selection and payoff verification