Final answer:
A position that is equivalent to being both short a put and long a call on the same underlying asset is equivalent to being long the asset in spot trade.
Step-by-step explanation:
The student is asking about the equivalent position in spot or forward trades to a combination of option contracts: shorting a put and going long on a call on the same underlying asset with the same strike price and expiration date. This combination is known as a synthetic long position and is equivalent to being long the asset in a spot trade. When you short a put, you are obligated to buy the underlying asset at the strike price if the put buyer decides to exercise the option. When you long a call, you have the right to buy the underlying asset at the strike price. If both options have the same strike price and expiration, their effects combine to simulate owning the actual asset, since any decrease in the asset's value is offset by gains in the long call position, and any increase in value is gained by not having to buy shares at a higher price due to the short put position. Hence, the correct answer is (1) Long the asset in spot trade.