synthetic short sale

Synthetic Short Sale

An option strategy in which one buys a put while selling a call on the same underlying asset. This is called a synthetic short sale because the investor makes a profit if the price of the underlying asset falls and a theoretically unlimited loss if the price rises.

synthetic short sale

The purchase of a put and the simultaneous sale of a call on the same security. This combination produces the same results as a short sale of the underlying stock; that is, unlimited potential gains for a downward price movement of the stock and unlimited potential losses for an upward movement of the stock.
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The constructive-sale rules apply to a short sale or any comparable transactions that "have the effect of eliminating substantially all of the taxpayer's risk of loss and opportunity for income or gain with respect to the [owned security]." (43) So, Maya would face taxable gain on the 100 shares of if she executes a short sale or a synthetic short sale, constructed with options.
Again, suppose that the stock is worth $30 today, and Maya wants to execute a synthetic short sale. She would borrow $30, buy a put, and sell a call.
(46) Like the synthetic short sale, an equity collar combines a long put with a short call.