What do you call a combination of a long (short) call option and short (long) put option with same face value, same expiration date, same style, where the strike price is equal to the forward price?
A) a synthetic forward
B) a straddle
C) risk reversal
D) a strangle

Question

Quizplus · Accepted Answer

This is a synthetic forward, as it effectively mimics the payoff of a forward contract using options. The long (short) call option gives the holder the right to buy (sell) the underlying asset at the strike price, while the short (long) put option obligates the holder to sell (buy) the underlying asset at the strike price. Since the strike price is equal to the forward price, the combination effectively locks in a price for the underlying asset at the expiration date, similar to a forward contract.

What Do You Call a Combination of a Long (Short)