Synthetic Straddle

A synthetic straddle is an advanced two-leg strategy that replicates the payoff characteristics of a traditional straddle using a combination of stock position and put options, creating volatility exposure while maintaining different risk and capital characteristics. This sophisticated approach involves holding a long stock position and buying two at-the-money puts, creating a position that profits from large price movements in either direction while maintaining the benefits of stock ownership such as dividends and voting rights. The strategy is particularly effective for investors who want straddle-like volatility exposure but prefer to maintain actual stock ownership rather than pure options positions. Professional traders use synthetic straddles when they expect significant price movement but want to maintain long-term equity exposure with enhanced downside protection. The strategy offers different margin requirements and tax implications compared to traditional straddles, making it suitable for various portfolio management objectives. The put positions provide amplified downside participation while the stock provides unlimited upside potential

If NIFTY is at ₹25,800, set up: Long NIFTY position at ₹25,800, Buy two ₹25,800 Puts for ₹110 each, creating total investment of ₹26,020 with profit potential from large moves in either direction and enhanced downside leverage through put multiplication.