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    AKSHAYA AKSHAYA
    Short Synthetic is a bearish strategy that involves selling a call option and buying a put option at the same strike price and expiration. This creates a position equivalent to being short the underlying stock or index. The strategy profits if the price falls below the strike price minus the net premium received. The risk and reward are unlimited, as the maximum possible loss is unlimited but gains are also unlimited if the price falls significantly.

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    Short Synthetic is a bearish strategy that involves selling a call option and buying a put option at the same strike price and expiration. This creates a position equivalent to being short the underlying stock or index. The strategy profits if the price falls below the strike price minus the net premium received. The risk and reward are unlimited, as the maximum possible loss is unlimited but gains are also unlimited if the price falls significantly.

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    Short Synthetic is a bearish strategy that involves selling a call option and buying a put option at the same strike price and expiration. This creates a position equivalent to being short the underlying stock or index. The strategy profits if the price falls below the strike price minus the net premium received. The risk and reward are unlimited, as the maximum possible loss is unlimited but gains are also unlimited if the price falls significantly.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    22 views2 pages

    12 PDF

    Uploaded by

    AKSHAYA AKSHAYA
    Short Synthetic is a bearish strategy that involves selling a call option and buying a put option at the same strike price and expiration. This creates a position equivalent to being short the underlying stock or index. The strategy profits if the price falls below the strike price minus the net premium received. The risk and reward are unlimited, as the maximum possible loss is unlimited but gains are also unlimited if the price falls significantly.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    Short Synthetic

    Short Synthetic is a strategy to be used when the investor is bearish on the market direction and expects
    market to fall down in the near term.

    This strategy involves Selling a Call Option and Buying a Put Option at the same Strike price. Both Options
    must have the same underlying security and expiration month.

    Short Synthetic behaves exactly the same as being short on the underlying security.

    The investor can go for Short Synthetic strategy expecting payoff characteristics similar to being short on the
    stock or future contract.

    The risk and the reward are unlimited.

    Investor View: Bearish on direction of the Stock / Index.

    Risk: Unlimited.

    Reward: Unlimited.

    Breakeven: Strike Price +/- net premium paid/ received.

    Illustration

    Eg. Nifty is currently trading @ 5500. A Short Synthetic can be created by selling Call Strike 5500 @
    premium of 140 and buying Put Strike 5500 @ 100. Net inflow of premium is 40.

    Strategy Stock/Index Type Strike Premium

    Short Synthetic NIFTY(Lot Buy PUT 5500 100


    size 50) (Outflow)

    Sell CALL 5500 140


    (Inflow)

    The Payoff Schedule and Chart for the above is below.

    Page 12
    Payoff Schedule Payoff Chart
    NIFTY @ Expiry Net Payoff ( )
    5000 27000 25000

    5100 22000 20000

    5200 17000 15000


    5300 12000 10000
    5400 7000
    5000
    5500 2000
    0
    5540 0 5100 5200 5300 5400 5500 5600 5700 5800 5900
    -5000
    5600 -3000
    5700 -8000 -10000

    5800 -13000 -15000

    5900 -18000 -20000

    In the above chart, the breakeven happens the moment Nifty crosses 5540 (since net inflow is 40). In such a
    strategy, risk and reward is unlimited.

    Disclaimer

    Page 13

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