In a Financial Derivative Context, What Is a ‘Synthetic Short Position’?

A synthetic short position is a financial strategy created using a combination of other financial instruments, typically options, to replicate the payoff of a direct short sale of an underlying asset. For example, a synthetic short stock position can be created by selling a call option and simultaneously buying a put option on the same underlying asset with the same strike price and expiration date.

This allows a trader to profit from a decline in the asset's price without directly borrowing and selling the asset.