This guide explains how synthetic futures work on Nifty, why they track futures, the costs and margin, and when traders use them instead of futures.
At a glance
| Synthetic long | Synthetic short | |
|---|---|---|
| Legs | Buy a call, sell a put, same strike and expiry | Sell a call, buy a put, same strike and expiry |
| Behaves like | Long futures | Short futures |
| Delta | About +1 per unit | About −1 per unit |
| Cost | Net premium, small near the money | Net premium, small near the money |
| Maximum profit | Unlimited | Large, down to zero |
| Maximum loss | Large, down to zero | Unlimited |
| Margin | SPAN and exposure on the short put | SPAN and exposure on the short call |
Why a synthetic tracks the futures
At expiry, a long call and a short put at the same strike always add up to the index minus the strike:
- If Nifty ends above the strike, the call pays the difference and the put expires worthless.
- If it ends below, the put costs you the difference and the call expires worthless.
So the position gains or loses one point for every point in Nifty, exactly like long futures. This relationship is called put-call parity. Before expiry, the net premium of the call minus the put sets the price at which the synthetic is effectively bought.
The numbers on one lot
Using Black–Scholes model prices with Nifty at 25,000, 12 days to expiry, IV of 14%, an interest rate of 6.5% and a lot of 65:
- Buy the 25,000 call at ₹280.50
- Sell the 25,000 put at ₹227.10
- Net debit: ₹53.40 per unit
- Synthetic price: 25,000 + 53.40 = 25,053.40
The fair price of a futures contract with the same 12 days is also about 25,053, because both reflect the cost of carrying the index to expiry. In live markets the two can differ by a few points, which is the basis for conversion and reversal arbitrage.
| Nifty at expiry | Synthetic long, per lot | Long futures at 25,053, per lot |
|---|---|---|
| 24,500 | −₹35,971 | −₹35,945 |
| 25,000 | −₹3,471 | −₹3,445 |
| 25,500 | +₹29,029 | +₹29,055 |
The small gap in the table comes from rounding the futures price.
Interactive payoff chart: change the spot, IV, lot size and days to expiry to see the curve, breakevens and Greeks.
Why traders use synthetics
Weekly exposure on a monthly future
Nifty futures expire monthly, while Nifty options also have weekly expiries. A synthetic on the weekly expiry gives futures-like exposure that ends that week. Sensex futures on BSE trade thinly, so a synthetic built from Sensex options is often the practical way to hold a futures-like position.
Lower transaction tax
STT on futures is 0.05% of the contract value on the sell side. STT on options is 0.15% of the premium on the sell side, and the premium is small compared with the contract value. A synthetic near the money usually pays far less STT than a futures trade of the same size, though it pays brokerage on two legs instead of one. If an option is exercised at expiry, STT applies to its intrinsic value. Our STT tax calculator shows the current rates.
Arbitrage
If the synthetic price is below the futures price, a trader can buy the synthetic and sell the futures, locking in the difference until expiry. This is a conversion; the reverse is a reversal. Gaps are small and short-lived, and costs usually absorb them for individual traders.
Rolling and adjusting
Traders who hold options strategies sometimes add a synthetic to shift the overall delta without trading futures.
Margin and risk
A synthetic long carries the same risk as long futures. The short put needs SPAN and exposure margin, and the bought call needs its premium paid upfront. The total is usually similar to the futures margin. A synthetic is not a hedged position. Treat it with the same stop losses and position size as futures.
Choosing the strike
Use the at-the-money strike or the nearest liquid strike. Deep in-the-money or far out-of-the-money synthetics still track the futures, but one leg has a wide bid-ask spread and the other has a large premium, which raises costs.
When a synthetic works, and when it does not
Works best when:
- You want futures exposure on a weekly expiry or on an index with thin futures.
- You trade often enough that the lower STT matters.
- Both legs at the chosen strike are liquid.
Struggles when:
- Bid-ask spreads on either leg are wide. Two spreads can cost more than one futures spread.
- You hold through expiry without planning for settlement.
- You treat it as lower risk than futures. It is not.
Automating a synthetic
In QuantPower's strategy builder, add both legs at the ATM strike with the same entry signal, such as a moving average crossover or an opening range breakout. Buy the call first, then sell the put. Set the stop and target on the index level or on the combined P&L, and add an MTM stop loss.
Frequently asked questions
Is a synthetic long the same as buying futures?
The profit and loss match futures almost exactly. The differences are costs, margin treatment and expiry date.
Why is it cheaper in tax?
STT on options is charged on the premium, not on the full contract value as with futures.
Can a synthetic be cheaper than futures?
Sometimes the synthetic price is slightly below the futures price. Arbitrage traders close such gaps quickly.
What happens at expiry?
Index options settle in cash, so you receive or pay the difference between the index and the strike. Stock options are physically settled, so a stock synthetic held to expiry ends in delivery of the shares.
Sources
- Stoll, H. R. (1969). The Relationship Between Put and Call Option Prices. Journal of Finance, 24(5), 801–824
- NSE: Equity derivatives contract specifications
- NSE, schedule of STT and transaction charges; Finance Act, 2026 (STT rates from 1 April 2026)