Options Strategies
Synthetic Short Stock
Strategies Synthetic Short Stock
Component Buy put and sell call of the same strike price/level
Potential Profit
  • When the stock price/index level is below the break-even point
  • Substantial and equals to the break-even point minus stock price/index level
Maximum Loss
  • When the stock price/index level is above the break-even point
  • Unlimited and equals to stock price/index level minus break-even point
Time Value Impact Neutral
Break-even The strike price/level plus net premium received or the strike price/level minus net premium paid, depends on the strike price/level chosen
Remarks Compared with Short Selling of stocks, Synthetic Short Stock provides an alternative means for investors who would like to short shares. The portfolio will be subject to the constraints of the maturity of the options. Roll-over costs may be incurred if the investor wishes to hold the position beyond the expiry date of the option contracts. Margin may also be required. The short position might be assigned at anytime before expiry.
  Net Position +1 Jan 200 Put -1 Jan 200 Call

Component Buy ABC Jan $200 Put, pay $30, and sell ABC Jan $200 Call, receive $20
Net Premium Pay $30-$20=$10
Break-even $200-$10=$190
Profit when Stock price is below $190
Potential Profit $190 - stock price
Potential Loss Stock price - $190
Time Value Impact Neutral