Synthetic Short

A put has delta -0.30 to -0.70, not -1.00. You'd capture only part of the move. Plus, puts have significant time decay (theta) working against you. Synthetic short has delta -1.00 (full move capture) and near-zero theta. Trade-off: Put has defined risk while synthetic has unlimited risk. Choose based on conviction and risk tolerance.

If stock < strike: Your put is ITM (worth intrinsic value), your call expires worthless. You can exercise the put (sell shares at strike, but you'd need shares or this creates short stock) or sell the put. Net result: You capture the gain just like being short stock. Most traders close before expiration.

Unlimited. If the stock rallies from A$50 to A$100, you lose A$50 per share (A$5,000 per contract). If it goes to A$150, you lose A$100 per share (A$10,000). There is NO limit. Short squeezes have taken stocks up 10x or more. Size positions assuming worst-case scenarios.

Yes. Selling naked calls requires Level 3-4 options approval at most brokers. The naked call creates unlimited risk, so brokers require demonstrated experience, capital adequacy, and risk understanding. Check with your broker for specific requirements.

No - options have expirations. You must roll to new expiration (typically every 1-3 months) to maintain the position. Each roll has small friction costs. For indefinite short positions, traditional short selling may be simpler (if shares available and borrow fees acceptable).

Close current synthetic (buy call, sell put) - you'll receive a credit since the position is profitable. Open new synthetic at later expiration at the new, lower stock price (sell call, buy put). The credit from closing often exceeds the cost of opening, generating net cash. You've harvested profit while maintaining exposure.

You become short 100 shares at the strike price. This converts your synthetic to real short stock. Your put remains (unless you close it). Decide: Keep short stock (and manage it like any short position) or buy shares to cover (realizing the loss) and close put. Assignment isn't failure - it's just a position change.

Before ex-date, call premium is elevated (reflects dividend). If your call is ITM and dividend > time value, expect assignment. After assignment, you're short stock and owe the dividend. The dividend economics are similar to traditional short - you effectively 'pay' it. Plan around ex-dates to manage this.

ABSOLUTELY. Synthetic short has unlimited risk. A stop loss is not optional - it's survival. Set stop loss based on notional exposure, not net premium. If you wouldn't hold short stock above A$55, don't hold synthetic short above A$55. The stop loss is your maximum loss definition.

Buy a cheap OTM call above your stop loss level. This caps your upside risk at that strike. For A$50 synthetic short, buying a A$60 call for A$0.50 limits max loss to A$1,050 (A$10 move + A$0.50 hedge cost) per contract. Converts unlimited risk to defined risk, like a collar on a short position.

Calculate theoretical cost: Net should ≈ K×e^(-rT) - S + D (approximately zero for ATM). If actual net premium deviates significantly, parity is violated. If you receive unusually high credit, market may be pricing in unknown news. If you pay when you should receive credit, execution is poor or options are mispriced against you.

After selloffs, put skew spikes (puts expensive). This makes synthetic short more expensive (buy expensive puts). Wait for skew to normalize before entry. Track put skew percentile - enter when below 40th percentile. Steep skew (>70th percentile) means you're paying premium for the structure.

Calculate portfolio beta vs index. Multiply portfolio value by beta to get hedge notional. For A$300,000 portfolio with beta 0.8 to XJO: Hedge notional = A$300,000 × 0.8 = A$240,000. If XJO at 8000, each contract = A$80,000. Need 3 contracts for full hedge. Adjust as portfolio or beta changes.

If dividend > call time value + transaction costs: Let call be assigned (become short stock), receive dividend obligation, but call time value was less than dividend. Net: You 'received' the dividend minus transaction costs. Advanced strategy requiring precise timing and low costs. Not recommended for most retail traders.

Model fat tails explicitly. Assume 2-3 sigma moves occur more often than normal distribution suggests. Stress test for 30%, 50%, 100% rallies. Hedge with OTM calls or limit position size based on tail scenarios. A strategy that's profitable on average but blows up occasionally is worse than one with lower average returns but no blowup risk.