Synthetic short straddle

• Is constructed by the purchase of a futures contract or underlying instrument coupled with the sale of two at-the-money calls. Since the purchase of the underlying with the sale of one at-the-money call is a synthetic short put, then the sale of the second call completes this synthetic option strategy. This synthetic short straddle position can also be constructed by the short sale of the futures or underlying coupled with the sale of two at-the-money puts. Here, the short sale of the underlying and the short sale of the put create a synthetic short call position. The sale of the second put completes this synthetic option strategy. Note that in both cases, the trader is collecting a premium or receiving time value which makes the position synthetically short.


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 Embedded terms in definition
Futures contract
Short sale
Short straddle
Synthetic short call
Synthetic short put
Time value
 Related Terms

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