An strategy for options trading designed to imitate a short stock position. A synthetic short is created by selling at-the-money calls and buying an equal number of at-the-money outs of the same underlying stock with the same expiration date. A synthetic short position has the potential for unlimited profit (also meaning that it has the potential for unlimited loss). Similar to a short stock position, heavy losses can occur for the synthetic shorted stock if the underlying stock price unexpectedly rises.
Synthetic Short
Market Terms
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