Synthetic Mortgage Backed Security

Put-Call Parity describes an equality relationship that must exist across call and put options on a given security, assuming the same expiration date and exercise price. Given this relationship, traders are able to create "synthetic" positions. Such positions allow investors to mimic the payoffs of an actual position in the underlying investment. Recently, the lack of available liquidity in CMBS (commercial mortgage backed securities) has led investors to create synthetic positions in these assets. See article here, Reuters.

Short Interest at High Levels

Short interest has been high even though the market has recovered significantly. In fact, in the wake of the recovery, short sellers have increased their positions. If they are correct, we could see a market pullback. Their short positions, however, create a large "sideline" demand, which has actually made market moves more positive in the wake of neutral news (due to short covering). See article here, Yahoo/Bloomberg.