Gain exposure to the price movements of a particular stock without actually shorting the stock
Short Combination, Combo Strip
An investor who is synthetically short a stock will typically hold a short call option and a long put option on that stock with the same expiration date and strike price.
The net effect of this position is similar to shorting the stock itself, as the investor will profit if the stock price decreases and will incur a loss if the stock price increases. However, the investor does not actually borrow and sell the stock, and therefore does not have to worry about the potential difficulty and cost of locating shares to borrow. Additionally, the investor’s potential profit and loss are limited by the strike prices of the options, whereas shorting the stock directly allows for unlimited profit potential. Synthetic short stock can be a useful tool for investors who want to speculate on a decrease in the price of a particular stock without the risk of unlimited loss.
Leg 1 minus the net debit paid
stock to go down
substantial if stock goes to zero, but limited to Leg 1 minus the net debit paid
unlimited if the stock price goes up.
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