Answer: Payoff of a long put plus short call

## Explanation A short futures position has a **linear payoff** that decreases as the underlying asset price increases. The payoff diagram is a straight line with a negative slope. Let's analyze the options: **Option A: Payoff of long call + short put** - Long call payoff: max(S - K, 0) - Short put payoff: -max(K - S, 0) - Combined payoff: max(S - K, 0) - max(K - S, 0) = S - K - This creates a **long forward/futures position** (positive slope) **Option B: Profit of long call + short put** - This includes premium costs, which creates a non-linear profit profile - Not equivalent to a futures position **Option C: Payoff of long put + short call** - Long put payoff: max(K - S, 0) - Short call payoff: -max(S - K, 0) - Combined payoff: max(K - S, 0) - max(S - K, 0) = K - S - This creates a **short forward/futures position** (negative slope) **Option D: Profit of long put + short call** - This includes premium costs, creating a non-linear profit profile **Key Insight:** - The **payoff** (not profit) of a long put plus short call exactly replicates a short futures position - This is known as a **synthetic short futures** position - The payoff is K - S, which decreases linearly as the underlying price increases Therefore, option C is correct as it most closely simulates the economics of a short futures position.

Author: LeetQuiz Editorial Team