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A financing and risk management technique based on put/call parity and an investor's ability to obtain interest on the use of proceeds from a short sale. In a typical transaction, a brokerage firm sells stock short, buys a call, and sells a put (short actual, long synthetic). Depending on borrowing costs for the stock sold short and the relative pricing of puts and calls, a better than money market return might be obtained at very low risk. If the options are American-style, there is some risk that the stock will decline sharply and the short put will be exercised after the long out-of-the-money call has lost nearly all of its value. See Reconversion, Reversal (2).
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