Example: Short -100 any stock @ 50.00 Buy 47.50 Call @ 3.30~50 Two possible scenario : Bad one : It goes to 55.00 What happen in this scenario ? Is that call cover my short with limited losses or without loss or not. Good one : It goes to 45.00 Option expires and short trade covered with $500 gain. 500 - 330 = $170 total profit. Sorry for my dump question. But where did I make a mistake about this strategy ?
Nothing wrong with your strategy, except that you can achieve the same thing by just buying a put option (47.5 strike in your example). Short stock+long call is the synthetic equivalent of long put.
> Bad one : It goes to 55.00 > What happen in this scenario ? Is that call cover my short > with limited losses or without loss or not. In your example at 55 you will have a cost of $180. So, no free lunch , sorry ;-)