#SyntheticShort – Just throwing this out there…

Whiz, FWIW, is really getting concerned about the market going into October. I understand he’s always trying to act like a big shot know it all guy but supposedly his connections he still has in the Navy from his Top Gun days are getting worried. He says…”something is coming” and it’s gonna be bad. Obviously he says he may be wrong but who knows.

He’s throwing around all sorts of hedge ideas but most have about 5k risk for limited protection (unless outright buying of puts). I threw this idea out there to him and waiting for a response. How’s this look for a hedge that will work all the way to zero for limited risk? It’s similar to just buying the puts but with little to nothing out of pocket up front.

How about synthetic short Nov SPX at 2500 (sell call and buy put). Then buy a protective call at 2550 in case we get a rip your face off rally. Net cost out of pocket of about a buck. This hedge should make money all the way to SPX zero with max loss capped at 2550 to the upside. What am I missing? Still risking the usual 5 grand but with unlimited protection to the downside. Sort of a reverse long call diagonal but on a much shorter time frame…