Creates a position that behaves identically to being short 100 shares of stock using options only. Selling a call and buying a put at the same strike mirrors the risk/reward of short selling with potentially less capital.
Substantial (to strike price × 100)
Unlimited (stock can rise infinitely)
Strike Price - Net premium paid/received
Short 1 ATM Call + Long 1 ATM Put (same strike, same expiry)
Substantial profit potential. Unlimited risk to upside. Mirrors short stock P&L.
When you want short stock exposure using options. Can be more capital efficient than shorting stock. When shares are hard to borrow.