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Synthetic Futures

What is Synthetic Futures?​

Synthetic Futures uses ATM (At-The-Money) calls and puts to create a delta-neutral position that mimics futures price action. This strategy allows traders to simulate futures contracts using options, providing an alternative way to gain futures-like exposure.

Synthetic Futures provide similar price action to actual futures contracts without requiring futures market access, and can offer advantages in certain market conditions.

How to Add Synthetic Futures​

Users can add Synthetic Futures by configuring the following options:

1. Underlying​

  • Select the underlying asset (NIFTY shown in the image)
  • The base asset that the synthetic futures will track

2. Time Frame​

  • Defines the candle interval (5 = 5-minute candles as shown in the image)
  • Determines the timeframe for price data analysis

3. Candle Type​

  • Choose between different candle representations:
    • candlestick: Standard OHLC (Open, High, Low, Close) values
    • Other options likely include Heiken Ashi (not selected in the image)

4. Duration​

  • Determines how much historical data to include
  • "1 Day" selected means data from the current and previous day

Advanced Configuration Options​

1. Expiry​

  • Expiry Type: Weekly
  • Expiry Selection: Current
  • Determines which options contracts will be used to create the synthetic futures

2. Strike Selection​

  • Strike at: Always the Current ATM Strike
  • Moneyness: ATM (At-The-Money)
  • Time-based Selection: "Select as of" option available
  • Controls which specific option strikes will be used to construct the synthetic position

3. Element Name​

  • The unique identifier for this synthetic futures data ("synthFUT" in the image)
  • Used to reference this data within your strategy framework

How Synthetic Futures Work​

Synthetic Futures combine ATM call and put options to create a position that behaves similarly to a futures contract:

  • Long Synthetic Future = Long Call + Short Put (at the same strike)

The advantages include:

  • Potentially lower margin requirements than actual futures
  • Can be constructed even when futures aren't available
  • May offer different risk/reward characteristics in certain market conditions

Use Cases for Synthetic Futures​

  • Alternative to Direct Futures Trading
    → When futures market access is limited or costly

  • Arbitrage Opportunities
    → When synthetic futures prices diverge from actual futures

  • Risk Management
    → To hedge existing positions with different margin/risk characteristics

  • Strategy Testing
    → To experiment with futures-like strategies without using actual futures

Additional Notes​

  • Synthetic Futures will automatically use the appropriate ATM call and put options
  • Be aware of options expiry dates and potential rollover requirements