Synthetic equity

[outlier_1201]

what’s the motivation / benefit of equitizing your cash into a synthetic position?

 

[cpk123]

you still have access to your cash.
for a short term you invest into say a synthetic equity position using futures contracts. you get advantage of returns from that market as long as your position is held.

 

[outlier_1201]

thanks cpk!

 

[rafay701]

whats the difference between equitize cash and synthetic cash

 

[S2000magician]

Equitizing cash is turning cash into equity.
Synthetic cash is turning something else (generally equity or fixed income) into cash.
They’re pretty much inverses of each other.

 

[theblackswan]

Synthetic cash = long equity short future
equitize cash = market neutral, long future and making money on the cash by adjusting its duration I think

 

[g3r41d]

rafay701 wrote:
whats the difference between equitize cash and synthetic cash

equitize cash (hold cash + long index futures) = convert cash exposure to stock exposure
synthetic cash (hold stock + short index futures) = convert stock exposure to cash exposure

 

[g3r41d]

theblackswan wrote:
equitize cash = market neutral, long future and making money on the cash by adjusting its duration I think

I think you are refering to derivatives based enhanced indexing here. Where you achieve market exposure through long a futures and holding bonds. You adjust your bonds duration based on the yield curve expectations to generate alpha. And that itself is not market neutral as there is beta in the long futures.

 

[theblackswan]

You are right - I was thinking of Equitizing a long short portfolio.
investor can add systematic risk to the market neutral strategy to earn higher return