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Old 10-30-2019, 10:23 AM
jubair07 jubair07 is offline
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Default Forward Question Short Stock Position

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Shorting stock position is same as shorting forward and then buying the zero-coupon bond that part I understood.

What I don't get is what does it mean by "moving the bond to the other side of the equation to put selling a stock on one side"?

And why are we shorting zero-coupon bond, aren't we buying and holding it to cover for short stock/forward?
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Old 10-30-2019, 02:14 PM
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You can view this as follows, where + represents long position and - represents short position. Thus, we can express "a short forward is equal to short stock plus a long bond" as:

-F = -S + B

Now, if we move "+B" to the other side of the equation, we have:

-F - B = -S

Note that the sign associated with B is now negative. Since we define a negative sign to represent a short position, we now have short stock. So, we can interpret the resulting equation above as "short forward and short bond is equal to short stock".
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Last edited by tkt; 11-03-2019 at 03:53 PM..
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Old 11-01-2019, 08:54 AM
jubair07 jubair07 is offline
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Thanks so much!
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Old 11-01-2019, 04:31 PM
lilj0825 lilj0825 is offline
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I think long forward equals to having long in stock and short in cash.
The formula is +F = +S - B. So shorting a stock becomes -S = -F - B.
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