Synthetic Short

Long Put: Delta ~-50, limited loss (premium), significant time decay. Synthetic Short: Delta ~-100, UNLIMITED loss potential, minimal time decay. Long put is safer but less exposure and decays. Synthetic is more exposure, no decay, but much riskier.

Unlimited. If FTSE is at 7,750 and goes to 9,750 (+26%), you lose £2,000 per contract. If it goes to 15,000 (extreme example), you lose £7,250 per contract. There is NO CAP on losses. This is why stop loss is mandatory.

No. That's the point - you create short exposure without dealing with actual shares. You just need options trading approval (including short call permission) and sufficient margin. No share borrowing required.

Use a Bear Put Spread (long put + short lower put) for defined risk bearish exposure. Or just buy a put - you'll pay for time decay but risk is limited to premium. Synthetic Short is for those accepting unlimited risk for full short exposure without theta.

Institutional traders and sophisticated retail: (1) No time decay - can hold short for months without bleeding value, (2) No borrow fees or dividend liability, (3) Full -100 delta exposure, (4) Proper risk management via stop losses makes it manageable. It's not reckless if properly managed.

Equity put skew (OTM puts have higher IV) makes the put you buy relatively more expensive than the call you sell. Result: Synthetic Short often costs a small debit, unlike Synthetic Long which often receives credit. This is the 'cost' of short exposure via options.

Roll 2-3 weeks before expiration to avoid last-week gamma/assignment risk and maintain liquidity. If underlying has moved significantly, adjust strikes to ATM at the new price. Roll cost depends on how position has moved.

ATM: Both options at current price, immediate short exposure, typically small debit. Split-strike (e.g., 480p put / 520p call when stock is 500p): Buffer zone in middle, often credit entry, short exposure only kicks in outside the range. Split-strike is more forgiving but less immediate exposure.

American-style options (stocks) can be assigned any time. Most likely just before ex-dividend if call is ITM (holder wants dividend). If assigned, you must deliver shares at strike. Either buy at market and deliver (crystallize loss) or if you happen to own shares, deliver them. European-style (index) = cash settlement at expiration only.

Yes! Synthetic Short + Long Stock = approximately flat position (delta neutral). Used to neutralize stock exposure without selling shares (avoiding CGT event). But simpler to just sell or use collar. Synthetic short as hedge is more common for portfolio-level hedging.

Position limits (max notional), strict stop losses with automatic execution, real-time margin monitoring with buffers, portfolio-level hedges, and diversification across uncorrelated positions. Never concentrate unlimited risk. Professional risk management makes it manageable.

Hard-to-borrow stocks have high implied borrow rates priced into options. This shows up as higher put prices (and lower call prices) relative to theoretical. Synthetic Short may actually cost MORE on hard-to-borrow stocks because the put is expensive - reflecting the difficulty of shorting.

Same P&L exposure as traditional short - you lose as price rises. Advantage: No recall risk (can't be forced out by lender). Disadvantage: No natural 'circuit breaker' of forced covering that sometimes ends squeezes. You must actively manage your own exit.

Options-based synthetics may not trigger short selling disclosure rules (varies by jurisdiction). However, total economic exposure may be considered for manipulation rules. Large positions should be reviewed with compliance. Market manipulation laws apply regardless of instrument used.

Model margin under scenarios: +10%, +20%, +50% rally, correlated moves across positions, VIX spike (increases margin). Ensure capital available for worst scenario margin + buffer. Consider overnight gap risk. Many 2008/2020 blow-ups were margin-related on shorts.