Long Synthetic Future

Introduction to Long Synthetic Future

A Long Synthetic Future is a key term you might come across in the world of option trading with cryptocurrencies. To simplify what might seem to some a complex topic, a Long Synthetic Future is essentially a combination of options - that encompasses possessing a long call option, with simultaneously selling a put option. Both have the same strike price and expiration date.

Understanding the Long Synthetic Future in Context

When someone creates or moves into a Long Synthetic Future, they are aiming to mimic the profits and losses that would be accumulated by owning an actual future that is, a commitment to buy the underlying asset at a future date. This deliberate strategy is ideal in situations where one wants to execute the benefits of future trading, but with a flexibility not directly available in the traditional futures market.

An Example of Long Synthetic Future in Cryptocurrency Trading

Let's take an example to make the concept clearer. Suppose a trader believes that the price of Bitcoin, a widely popular cryptocurrency, will rise in the next few months. To capitalize on this expected price hike, the trader can enter into a Long Synthetic Future. The trader buys a long call option and simultaneously sells a put option for the same number of Bitcoin, at the same strike price and set to expire on the same date. If the market moves as expected and the price of Bitcoin increases, the trader will profit. Conversely, if the market drops, the losses are also mirrored.

Wrapping Up

In summary, a Long Synthetic Future is a critical tool in the group of derivatives used for crypto trading. Whether it's Bitcoin, Ethereum, Litecoin, or any other digital currency, understanding how Long Synthetic Futures work is a powerful weapon in your cryptocurrency trading arsenal.