I am trying to understand why longing a forward is the equivalent of buying a call and selling a put and NOT the opposite?
My reasoning- you long a forward with forward price of $60 if stock price goes up to $65, you will have to pay $5 so that’s a loss…equivalent being you sell a call if stock price goes down to $55, you receive a gain of $5… equivalent of buying a put.
Am i looking at this wrong??
You mixed up your gains and losses in your long forward example.
When you long a forward, you gain if the price goes up (buying a call) and lose if price goes down (selling a put). Say you long forward to buy barrel of oil. If the price of the barrel goes up, that’s good news for you (the buyer), you’ll get it at the forward price which is less than the spot price at time t.
On the opposite side of the trade, if you sold the forward, you gain if the price goes down (buy put), and lose if price goes up (sell call). If the price goes down, you will still get the forward price that you locked in which is higher than the spot price at time t.
Long forward at $60 and market value is $65 is a gain (you effectively bought for less). Long forward at $60 and market value is $55 is a loss (you bought for more).
Looks like you were analyzing a short forward position.
ah got it , thank you! the oil barrel example helped