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Synthetic Stocks, Real Returns

March 9, 2018

A synthetic options strategy can be used to replicate the payoff profile of the underlying stock for a fraction of the capital.

This article details several synthetic overlay strategies which compliment a broader portfolio ideally suited for a semi-active investor.

A small allocation of two percent to the split-synthetic overlay creates a portfolio with significant outperformance (13.04% annually) compared with passive index holding (8.13% annually).

The synthetic overlay exhibits only slightly higher volatility and similar draw-down to the all equity portfolio, making it the dominant strategy for even relatively conservative investors.