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gateway/knowledge/trading/strategies/options/short-combo.md
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gateway/knowledge/trading/strategies/options/short-combo.md
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description: "A bearish capital-gain strategy (short risk reversal) buying an OTM put at K1 and selling an OTM call at K2 > K1, profiting from a strong downward move."
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tags: [options, speculation, bearish, risk-reversal]
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---
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# Short Combo
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**Section**: 2.13 | **Asset Class**: Options | **Type**: Speculation
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## Overview
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The short combo (a.k.a. "short risk reversal") amounts to buying an OTM put option with strike K1 and selling an OTM call option with strike K2, where K2 > K1. The trader's outlook is bearish. This is a capital gain strategy.
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## Construction
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- Buy 1 OTM put option at strike K1
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- Sell 1 OTM call option at strike K2 (K2 > K1), same expiry
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Net debit or credit H (H = D if net debit, H = -C if net credit; K2 > K1)
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## Payoff Profile
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f_T = (K1 - S_T)+ - (S_T - K2)+ - H
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Breakeven depends on sign of H:
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- S* = K1 - H (if H > 0, net debit)
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- S* = K2 - H (if H < 0, net credit)
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- K1 <= S* <= K2 (if H = 0, zero-cost)
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- Max profit: P_max = K1 - H (if stock goes to zero)
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- Max loss: L_max = unlimited (stock can rise without bound)
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## Key Conditions / Signals
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- Strongly bearish outlook
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- Traders often structure as zero-cost (H = 0) by selecting K1 and K2 such that premiums offset
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- Profits from a large downward move; loses if stock rises above K2
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## Notes
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The short combo creates a flat zone [K1, K2] where the payoff equals -H. Unlike the short synthetic forward (where K1 = K2 = S0), both strikes are OTM. Unlimited loss potential on the upside due to the short call.
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