Definition
Synthetic Short
A synthetic short replicates short-selling the underlying by selling a call and buying a put at the same strike.
Selling a call and buying a put at the same strike and expiry mimics a short futures or short stock position — you profit as the underlying falls and lose as it rises. It is useful when shorting the stock directly is restricted or when the options market offers better pricing.
On the NSE, synthetic shorts let traders bypass the absence of cash-market short delivery (intraday only) by using options instead. As with any short, the risk is open-ended on the upside, and the position must be margined like a futures short under SPAN.
Related terms
- DeltaDelta measures how much an option's premium changes for a ₹1 move in the underlying stock or index.
- Synthetic LongA synthetic long replicates owning the underlying by buying a call and selling a put at the same strike.
- Short SellingShort selling is selling a security you don't own (by borrowing it) in the hope of buying it back cheaper for a profit.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.