Look at your synthetic financial positions!

Åsa Granberg
9 January 2019

Look at your Synthetic Financial Positions!

By now you are all aware of the fact that the economy is showing many signs of markets either being saturated or starting on a down turn. The political instabilities are also having impact. These are moments when you carefully need to review any financial positions or investments that you have and make out a plan of what you do and how you are going to manage your assets in various scenarios.

As a financial instruments trading specialist and senior banker management advisor I always recommend that you review your total portfolio and identifies your so called “synthetic financial positions” in your total investment portfolio. The synthetic positions will let you see what kind of possible strategic moves you can execute during all various market scenarios and movements. It also gives you your total risk profile.

An example of a synthetic position just to give you an idea of what a synthetic position is, is for example that you can create the same risk/return profile in your portfolio, when combining financial contracts, as if you in fact would have bought the underlying asset.

I’ll give you the most simple example; instead of buying the actual stock security – you can buy a “call option” and sell a “put option” on the same strike, preferable on the at-the-money strike (todays stock market price), and “voila” now you have the same risk/return profile in your portfolio as though you would have bought the actual stock security. The difference is that you have time-limited instruments in your portfolio, but you also have two contracts instead of one which gives you a larger spectrum of possible actions to take. If you would have bought the underlying (the actual) stock then you have the option to keep it or sell it, to keep my example as simple as possible.

So, what I mean when I ask you to review your synthetic positions is to see the full picture of your portfolio and not reviewing every financial investment as a single instrument. Now, you make a strategic actionplan.