Shorting Negative-Priced Synthetic Spreads

Summary

The document explains how to take a short position in a synthetic instrument that can have a negative price, using spreads as examples. It lists calendar spreads, butterflies, and double butterflies, then gives a January–February calendar spread: the long position buys the January contract and sells the February contract.

To short that spread, reverse the direction of each leg by selling January and buying February. This illustrates that shorting a spread means taking the opposite position in its component contracts; the spread’s negative price does not change that sign reversal. The explanation is limited to synthetic multi-leg positions and does not discuss margin, execution, or risks in the underlying contracts.

Key ideas

• Spreads and butterfly combinations can have negative prices.
• Shorting a synthetic spread reverses the direction of every leg.
• A short January–February calendar spread sells January and buys February.
• The example does not cover margin, execution, or the risks of the component contracts.

Tags

# What is shorting a asset that has negative price. Can anyone give me an example?


# What is shorting a asset that has negative price. Can anyone give me an example?












What is shorting a asset that has negative price. Can anyone give me an example?

## Answer by Joshua Ulrich (score 3)

https://quant.stackexchange.com/a/10377

Three examples would be spreads, butterflies, and double-butterflies. They can all have negative prices. Reverse the sign of the quantity on all the legs and you're short the synthetic.

For example, the Jan-Feb calendar spread would buy 1 Jan and sell 1 Feb contract. If you wanted to be short the spread, you would sell 1 Jan and buy 1 Feb contract.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.