Al,
From the sound of your question, you seem to understand the synthetic nature of the position i.e. you sold the put synthetically and bought the actual put which leaves you no position. Your difficulty seems to lie in the mechanics of how the position zeroes out in the end. To see this, you need to take a look at what happens at expiration. So, we currently we have this position on.
Long 100 shares of XYZ
Short 1 XYZ May 50 call
Long 1 XYZ May 50 put
If, at expiration, the stock closes over $50.00, then your long put will expire worthless and you will do nothing with it. Meanwhile, your short call will wind up in the money and the owner will exercise it. At this point you will be assigned and owe out 100 shares of stock. This coincides with the 100 shares you are currently long so, thus, your shares will disappear along with the option positions.
If, at expiration, the stock closes under $50.00, then your short call will expire worthless and you will do nothing with it. Meanwhile, your long put will wind up in the money and you will exercise it. At this point you sell 100 shares to the person who is short the put. This coincides with the 100 shares you are currently long so, thus, your shares will disappear along with the option positions.
This is how the conversion and the reversal zero themselves out mechanically at expiration.
The only risk here is if the stock closes directly on the 50 strike on expiration Friday. In this case, you do not know what the owner of your short position is going to do. They may exercise, they may not. This could affect your position dramatically. Best course of action in this case is if at the close, the stock is right there at $50.00, just buy back your short call and exercise your put if you want to get rid of your long stock. If you want to keep the long stock, do not exercise the put after buying back the short call.
Hope this helps!
