Reference no: EM133113233

Under the strategy of short-selling, investors sell the stocks they have borrowed to a lender with the expectation that the prices of those stocks will decline. The goal is to make a profit by buying back the shares at a lower price before returning them to the lender.

Suppose the US Congress passes a bill that prohibits short selling of stocks, making it impossible for investors to make a profit when stock prices fall. However, the US Congress does not impose any restrictions on financial options. Using Call-Put Theory, what advice could you give to investors who want to short certain stocks? In other words, come up with a strategy that describes how to achieve the equivalence of a short sale using options and leverage. Create a payoff table for your strategy to confirm / validate your answer.