There is a synthetic equivalent for all of the basic positions in an underlying security and its corresponding options. In other words, the risk/reward profile of any position can be simulated using a complex combination of the other basic positions. These equivalents are known as synthetic underlying and synthetic options respectively for the underlying security (e.g. stock or futures) and options positions.
Options Arbitrage
Synthetic positions help compare the payoff of different combinations. They can also be used to investigate pricing differences between a position and its synthetic counterpart. Matching expiration payoffs does not guarantee a risk-free executable trade: financing, dividends, stock borrow, exercise style, fees and execution matter.
