Short Combo
A short OTM call plus a long OTM put — synthetic short stock with a bearish lean and a possible credit.
Profit / Loss Diagram
Short Combo at expiration
What is this strategy?
The Short Combo is the inverse of the Long Combo — its bearish mirror. Construction: buy 1 OTM put and sell 1 OTM call. It replicates short stock exposure with less capital but with unlimited risk to the upside.
It suits bearish traders with limited capital. The sold call generates a credit that finances part of the purchased put.
The risk: the upside loss is unlimited, because the call is sold naked. It requires high margin and strict discipline.
Construction
| Action | Instrument | Strike | Expiration | Example |
|---|---|---|---|---|
| BUY | 1 Put | OTM (lower) | 30-90 DTE | +1 SPY May 440 Put |
| SELL | 1 Call | OTM (higher) | Same expiry | -1 SPY May 460 Call |
Example
SPY at $450, moderately bearish outlook.
- Put Purchased (440) −$250 premium paid
- Call Sold (460) +$300 premium received
- Net Credit +$50
- Zone Between Strikes Between $440 and $460 you keep exactly the $50 credit
- Breakeven $460.50 (460 strike + 0.50 credit per share)
- Profit if SPY = $400 +$4,050 ($4,000 from the put + $50 credit)
- Maximum Gain $44,050 (440 × 100 + $50), if SPY falls to zero
- Loss if SPY = $520 −$5,950 ($6,000 on the sold call − $50 credit) and growing without limit
The Greeks
Net delta near −1, similar to short stock.
The legs cancel each other out.
They cancel.
Long gamma from the put, short gamma from the call.
Position Management
- 01 Stop Loss on the Short Call If the underlying rises to the strike, close or roll.