How Is a Synthetic Short Asset Position Created Using Options?
A synthetic short asset position is created by combining a short call option and a long put option with the same strike price and expiration date. This strategy perfectly mirrors the payoff of a short sale of the underlying asset.
The profit potential is limited to the asset price falling to zero plus the net premium received. The loss potential is theoretically unlimited as the asset price rises.
Glossar
Synthetic Short
Construction ⎊ A synthetic short replicates the payoff profile of a short position in an underlying asset, typically cryptocurrency, without directly selling the asset itself.
Synthetic Short Position
Construction ⎊ A synthetic short position in cryptocurrency derivatives replicates the payoff profile of a traditional short sale without directly owning the underlying asset.
Short Asset Position
Exposure ⎊ Short Asset Position involves taking a derivative stance that profits if the price of the underlying crypto asset declines, achieved either through borrowing and selling the asset or by selling call options or buying put options.
Synthetic Short Asset
Construction ⎊ A synthetic short asset within cryptocurrency derivatives represents a liability exposure emulated through the combination of options strategies, typically involving the sale of call options and the purchase of put options, to replicate the payoff profile of a short position in the underlying asset without direct ownership.