Long Synthetic (Synthetic Put): 2025 Guide for Aussie Investors

As Australian investors navigate the choppy waters of 2025’s financial markets, sophisticated risk management tools are coming into sharper focus. The long synthetic, more commonly known as the synthetic put, stands out as a flexible and cost-effective way to hedge portfolios or speculate on market downturns without directly trading options. This strategy is garnering fresh attention amid evolving regulations and an increasingly dynamic Australian equities landscape.

What Is a Long Synthetic (Synthetic Put)?

The long synthetic, or synthetic put, involves creating a position that mimics the payoff of a traditional long put option—without actually buying the put itself. Instead, you combine two straightforward trades:

• Short the underlying asset (e.g., sell ASX200 shares you don’t own)
• Go long a call option with the same strike price and expiry

Together, these positions generate profit if the underlying asset’s price falls, just as a purchased put would. The synthetic approach can offer greater flexibility in execution and, in some cases, more attractive pricing than buying puts outright.

Why Synthetic Puts Are Trending in 2025

Several factors are fueling renewed interest in synthetic puts among Australian traders and institutional investors:

• Market Volatility: The ASX has seen heightened swings in 2025 due to global economic uncertainties, prompting many to seek downside protection.
• Regulatory Shifts: ASIC’s 2025 reforms have streamlined margin requirements for equity derivatives, making synthetic strategies more capital-efficient for sophisticated investors.
• Tax Considerations: Some investors may find tax advantages in the synthetic structure, particularly when managing capital gains or losses. (Always consult a tax professional for individual circumstances.)

For example, a Melbourne-based super fund hedged its large ASX200 exposure in early 2025 by building a synthetic put position, sidestepping liquidity issues in the options market and optimising its hedging costs.

How to Construct and Use a Synthetic Put in Practice

To build a synthetic put, follow these steps:

1. Short the underlying asset: Borrow and sell shares or take a short futures position.
2. Buy a call option: Purchase a call with the same expiry and strike as the shares you shorted.

Here’s a scenario: Suppose you’re concerned about a potential 10% drop in BHP shares by June. Rather than buying a put option (which may be expensive due to volatility), you short BHP shares and simultaneously buy an at-the-money call option. If BHP falls, the short position profits. If BHP rises, your call option limits your loss—just like a put.

Key advantages of the synthetic put:

• Customisable: You can tailor the strategy to your risk appetite and market view.
• Potential cost savings: Sometimes, synthetic puts are cheaper than direct puts, especially in illiquid or volatile markets.
• Liquidity: The underlying asset and call options are often more liquid than put options, especially on ASX blue chips.

Risks, Considerations, and 2025 Policy Updates

Synthetic puts are not without risks and complexities:

• Margin Requirements: Shorting shares or taking short futures positions requires margin, and your broker may call for additional funds if markets move against you.
• Borrowing Costs: Shorting stocks incurs borrowing costs, which can eat into profits.
• Dividends: If the underlying asset pays a dividend, as the short seller you may be liable for those payments.

In 2025, ASIC clarified margin and reporting rules for synthetic option strategies, making it easier for both institutional and sophisticated retail investors to implement these trades. However, brokers are increasingly requiring clear documentation of synthetic trades for compliance and transparency, so expect more paperwork and due diligence on execution.

Best practice: Use synthetic puts as part of a broader risk management plan. Monitor positions closely, and ensure you understand all associated costs and obligations.

The Bottom Line

The long synthetic (synthetic put) is a powerful tool for savvy Australian investors seeking protection against market downturns in 2025. By replicating the payoff of a put option through a combination of short-selling and call options, you can gain flexible, potentially cost-effective downside protection—just be mindful of margin, borrowing costs, and regulatory changes. As markets remain uncertain, mastering advanced strategies like the synthetic put can give you an edge in preserving capital and managing risk.