Short Synthetic

Short Synthetic

Components

Short one call option and long one put option at the same strike price.

Risk / Reward

Maximum Loss:Unlimited.

Maximum Gain: Unlimited.

Characteristics

When to use: When you are bearish on market direction.

A Short Synthetic is just the reverse of the Long Synthetic i.e. this option combination behaves exactly the same way as being short the underlying security. So, if you are very bearish on an asset and want the same characteristics as if you were short the asset then you might want to consider using a Short Synthetic.

Comments (3)

LarryJanuary 2nd, 2009 at 6:48am

If you add a long futures position to a Short Synthetic then the position will be delta neutral. If you buy the futures for less than the cost of the synthetic you have an arbitrage according to put call parity (C-P = S - X).

kannanDecember 25th, 2008 at 12:44pm

suppose i add one long position with futures and expect market direction as up is this complete hedging for my long fututes position is it right one?

Mike SchneiderSeptember 3rd, 2008 at 2:24pm

There are 3 risks in this position beyond the move in the underlying stock: dividend risk, interest rate risk, and pin risk. If this position is put on with a prime broker, in addition you have margin risk.

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