By combining a long call option and a short stock position, the investor simulates a long put position. The object is to see the combined position gain value as the result of a predicted decline in the underlying stock’s price.
It is not particularly popular, because it entails a short stock position. A synthetic long put is often established as an adjustment to what was originally simply a short stock position.
There is one possible advantage over a long put: in the event of an extended trading halt, the synthetic long put strategy does not require any action since the stock was sold when the strategy was implemented. However, as with any short sale, there is always a risk of being forced to return the stock.
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