Options – long and short synthetic strategies A “synthetic” is any strategy that mirrors the value changes in another security. For example, a short stock synthetic consists of options that gain or lose value in the same way as declining stock; and a long stock synthetic is most advantageous when the stock price rises. When you set up synthetic long or short stock, you get some incredible advantages. These are easily overlooked. Consider, though: 1. The risk to a synthetic position is no greater than going long or short on stock. But the synthetic position cost is close to zero, and possibly even a net credit. 2. The short stock risk is virtually eliminated using options, but allowing you to play bear markets. Using one long put instead of shorting 100 shares of stock sets this up. The long put is going to increase in value for each point lost in the stock. Even so, the maximum loss is the cost of the put. On the upside of this, the short call represents...See full article via the link below (registration for non-members takes only 1 minute) What are your thoughts on this topic? - See more at: globalriskcommunity/profiles/blogs/options-long-and-short-synthetic-strategies#sthash.eEO5k07P.dpuf
Posted on: Mon, 20 Jan 2014 07:34:43 +0000
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