Identifier: C4T4L4 | Revision: 2026-10-26 | Planned study: 10–15 minutes, excluding extended practice.

Decision and objectives

Choose whether the method addresses this lesson’s task before placing an order. Objectives: 1. Replicate a forward-shaped payoff with matched options. 2. Distinguish zero premium from zero risk. 3. Reconcile physical funding and financing differences.

Prerequisite: C4T4L3.

All numbers, quotes, contract terms and dates in the case are hypothetical teaching assumptions, not a listed series or offer. Unless varied below, options are European, expire together in 90 calendar days, are cash settled in TRY, and use 100 underlying units per contract. Premiums are TRY per underlying unit, paid at entry; signed quantities identify long (+) and short (−) legs. Assume no distributions and zero financing for the isolated payoff, no holiday adjustment, and final cash on the next business day. Actual tax is excluded, not assumed zero.

Mechanics

A synthetic long forward is a long call plus a short put with the same strike, expiry, underlying, multiplier and settlement. At expiry the net payoff is S−K. Reversing the legs gives K−S. This is a linear terminal obligation assembled from options. It does not create the financing, distributions, ownership rights or cash timing of immediate stock ownership. A long call financed by selling a put can look inexpensive at entry while retaining substantial downside and collateral needs.

Price and return drivers

Identity: max(S−K,0) −max(K−S,0) = S−K. Deduct net premium, financing and charges to get investor profit. Under nonzero rates or distributions, fair call-minus-put value reflects forward financing through parity. Do not write “synthetic stock equals stock” without the strike cash account or a clearly specified profit comparison. Physical delivery can require full strike cash if the put is assigned or the call exercised. Cash settlement still requires the negative difference to be funded.

Worked case

Synthetic position: +1 European callK100 premium7; −1 European putK100 premium4; multiplier100, same fixing and cash settlement. Net debit300, total charges40. Expiry80: call0 minus put2000, net−2340. Expiry100: net−340. Expiry120: call2000 minus put0, net+1660. Breakeven is103.40. Compared with stock bought at100, the payoff slope matches100 shares but the initial net debit and lack of underlying rights differ. Any fair-value comparison must include the cash account rather than treating the option debit as the stock price.

Adverse case

Before expiry atS90, supplied call bid2 and put close ask13 give package liquidation2−13=−11 per unit: cash paid1100, combined with initial300 debit and40 charges produces−1440. That liability is much larger than the initial debit. In a physical comparison, either exercise of the call or assignment of the put may require TRY10000 to receive100 shares. A short put’s collateral can rise before the planned terminal date. At underlying zero the cash-settled expiry loss is10340 under these terms, well beyond340 paid premium and charges.

Practical use

Verify that both matched option legs exist and that the short put can be collateralized. For physical versions, ensure full strike purchase cash can be available under either exercised leg.

For any actual domestic implementation, verify the exact issue/contract, authorized intermediary, account permission and executable size. Include spread, commissions, passed-through fees, funding/borrow, custody and exercise/exit costs without double-counting embedded charges. Recheck income year, residency/status, issue/acquisition dates and effective tax law; all case results remain before actual tax.

Decision boundaries

Use synthetic positions to diagnose exposures and compare actual routes, not to hide leverage. The family of contracts may exist while one leg or the matched expiry lacks depth. Decline if the sale of the put breaches the loss or collateral budget. A straightforward future may offer a cleaner linear hedge, while a standalone long call preserves a finite paid-premium loss. Always choose based on the required payoff and funding capacity, not the apparent cheapness of the opening debit.

Practice and references

Exercise: reverse synthetic: −1 callK110 at8 and +1 putK110 at5; multiplier100; total fees40. Solution: Opening credit300. AtS90 net=(110−90)×100+300−40=2260. AtS130 net=−2000+300−40=−1740. Breakeven112.60. The upper-side loss is unbounded as the underlying rises; receiving300 does not bound the short-call obligation.

Takeaway: A synthetic forward can have a small debit and a large funding obligation; it is not fully paid stock ownership. Reference links: product card, formula; glossary: Synthetic forward; Strike funding. Next: C4T4L5. Topic test.

Sources: Borsa Istanbul: Settlement Method (retrieved 2026-10-26; Settlement by contract family). Options Industry Council: Put/Call Parity (retrieved 2026-10-26; Parity formula, financing, dividends and implementation restrictions). GIB: Provisional Article67 Guide for Individuals (retrieved 2026-10-26; Sections1,3–9 and19; publication introduction). Revision 2026-10-26; recheck changing terms before publication.

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