Strategies · Library · Options
§2.11Trend
Short synthetic forward
Buy an at-the-money put and sell an at-the-money call at the same strike and expiry. Behaves like a short in the stock or a forward sale, with little net cash outlay.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Plainly bearish: wants short-stock exposure without borrowing shares.
- Entry and exit
- Buy a put, sell a call, both at the current price, same expiry. Hold to expiry or unwind at the target or stop.
- Sizing
- 1:1 (one long put, one short call)
How it fails
- Loss is unlimited if the stock rallies, through the short call
- Gain limited by the stock falling to zero
- Margin for the short call; carry cost
- Assignment on the short call
Data it needs
- options chain with strikes and premiums
- implied volatility by strike and expiry
- underlying daily price
ARCANE has the underlying daily close but no options chains, strikes or implied volatilities
How ARCANE uses it
Matches a clear bearish Call that an asset ends a period lower. Paper only.
Needs short exposure that a long-only builder cannot hold.
Filed under the trend card
Hold each market in the direction of its own return over the past year, and size every position to the same expected volatility.
A paper plan from this card holds 21 to 252 days, stops at 2× the expected move and uses at most 100% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.11, p. 22 of the SSRN version. Described in our words. Trend is ARCANE’s filing, not the book’s.