A synthetic futures which is created by combining a short call option and a long put option on the same underlying futures, at the same strike price, and with both options expiring on the same date. This unlimited-profit, unlimited-risk futures option position is established to replicate the payoff of a short futures position and to hedge a long position in futures. The position created by a synthetic short futures is entered into by selling at-the-money calls while purchasing an equivalent number of at-the-money puts having the same underlying futures contract and expiring in the same month.
Providing an alternative to sell the futures outright, this synthetic strategy is usually pursued when an investor is bearish on the underlying futures.
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