2. Creating a synthetic short futures position using a combination of calls and puts. Either
options on the underlying index or options on the future could be used. Selling an index call
option and purchasing an index put option with the same contract specifications would
create a synthetic short futures position. This strategy would likely be more costly than
futures because two transactions are required. Longer-term options tend to be less liquid
than futures and SPDRs. Unlike futures, the option combination can be traded either as a
spread or separately. If the call and put are traded separately, bid/ask spreads and market
impact may increase the cost of the strategy. Options on some index futures are American
style, which may result in the call option being exercised at an inopportune time.
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