Crypto markets are volatile and fast-moving, making efficient hedging and leverage essential for active traders. While futures contracts are the go-to for leveraged exposure, they come with risks like liquidation and funding fees.
Enter synthetic positions. These setups let you replicate the payoff of a futures position using options, often with defined risk and more strategic flexibility.
This guide explains what synthetic positions in crypto are, how they work, and how traders can use them to mimic long or short futures without holding actual contracts.
What Are Synthetic Positions?
A synthetic position uses a combination of options and/or the underlying asset to replicate the payoff profile of another instrument, like a futures contract.
In most cases, synthetic futures with options involve:
- Long Synthetic Futures: Buying a call + selling a put (same strike/expiry)
- Short Synthetic Futures: Selling a call + buying a put (same strike/expiry)
These combinations mimic the exact profit/loss curve of long or short futures—without actually trading futures.
How to Build a Synthetic Long Position
To create a synthetic long position, you combine:
- Buy 1 Call Option (strike X)
- Sell 1 Put Option (strike X)
Both with the same expiry and strike price
Payoff Behavior
Mimics a long futures position:
- Gains as the underlying asset price rises
- Losses if the price falls
Crypto Example
Let’s say BTC is trading at $60,000:
- Buy BTC $60,000 Call (exp: 1 week)
- Sell BTC $60,000 Put (same exp)
Net premium depends on market conditions, but the payoff mirrors buying 1 BTC future.
Why Use This?
- Avoid perpetual funding fees
- Control margin exposure
- Use options liquidity instead of futures depth
This is often called a long synthetic futures strategy, making it attractive for traders who want futures-like exposure with defined risk.
How to Build a Synthetic Short Position
The Strategy
To create a synthetic short position, you:
- Sell 1 Call Option (strike X)
- Buy 1 Put Option (strike X)
Both with the same strike and expiry
Payoff Behavior
Mimics a short futures trade:
- Profits when price falls
- Losses when price rises
Example
BTC at $60K:
- Sell BTC $60K Call
- Buy BTC $60K Put
This behaves like shorting BTC futures—with defined exposure based on premiums.
This setup is part of a short synthetic futures strategy, giving traders tactical downside protection without using futures contracts.
Advantages of Synthetic Positions in Crypto
Defined Risk, No Liquidation
Unlike futures, options-based synthetic positions in crypto don’t auto-liquidate. If you pay a net premium, your maximum loss is predefined.
Tactical Flexibility
Switch easily from long to short exposure by adjusting legs—perfect for range-bound or breakout setups.
Skew and IV Advantage
When implied volatility skews misprice puts or calls, traders can build favorable synthetics and profit from distortions.
Avoiding Funding Fees
Unlike perpetual swaps, synthetic futures with options incur no ongoing funding charges—ideal for longer-term directional plays.
Learn more about Perpetual Swaps: What Are Perpetual Futures Contracts and How Do They Work
Common Use Cases of Synthetic Positions
| Use Case | Synthetic Type | Why It Works | |
|---|---|---|---|
| Replace futures | Long/Short Synthetic | Avoid liquidation, funding | |
| Directional bet | Long Synthetic | Cheaper than buying spot | |
| Hedging spot | Short Synthetic | Lock in profits, downside protection | |
| Market neutral | Combine with real asset | Isolate volatility or basis plays |
Tips for Executing Synthetic Positions Effectively
- Use ATM strikes for accurate synthetic long position or short replication
- Check IV skew, large differences may distort your P&L
- Monitor delta exposure, synthetics have high delta sensitivity
- Watch margin requirements, especially for naked short options
- Use strategy builders like Pi42’s Option Wizard (coming soon)
Risks to Consider
- Assignment risk (in American-style options)
- Bid-ask spread slippage, especially in illiquid altcoins
- IV crush or expansion affecting premium strategies
- Early expiry risk if markets move violently before your horizon
Conclusion
Synthetic positions in crypto give traders a powerful tool to gain futures-like exposure with options, while avoiding risks like liquidation, funding costs, or excess leverage.
Whether you’re hedging spot, making directional bets with a long synthetic futures strategy, or replacing high-risk trades using a short synthetic futures strategy, synthetic positions offer precision, flexibility, and tactical control.
Start building synthetic positions today on Pi42 using BTC, ETH, and SOL options. With low latency, tight spreads, and intuitive tools—Pi42 is built for serious crypto options traders.
Keep Learning:
What are Call and Put Options in Crypto
Option Premium in Crypto: What Are You Really Paying For?Understanding Crypto Options Liquidity and Slippage: Orderbooks Explained
What Are Altcoins: Understanding Their Importance and Impact
How to Trade in Cryptocurrency in India and Actually Make Profit