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Shorting is very risky, since the downside risk is unlimited if you guess wrong. (Imagine shorting Microsoft based on the low quality of their code, sometime ar
by clock_tower 11y ago
Shorting is very risky, since the downside risk is unlimited if you guess wrong. (Imagine shorting Microsoft based on the low quality of their code, sometime around MS-DOS 1.0.) It's better to buy businesses that will go up when the market goes down, or ones that are recession-proof in general, while avoiding cyclically sensitive businesses and, especially, any sectors that are about to have bubbles burst in them.
If the near future is the unicorn version of the dot-com bubble, its aftermath would be a good time for tech stocks you're interested in.
- nostrademons 11y agoOptions, then. Buy a put option and your downside is limited to the cost of the option; you just get nothing if it's out of the money. My point is that there are plenty of financial instruments that exist precisely so you can "put your money where your mouth is".
- sk5t 11y agoOptions vs. shorting are just two different ways to risk all your capital on a bet... the "unlimited" downside of a short position has a practical limit--it's when your broker forces your account to cover with buys (the short squeeze) and you zero out.
- jessaustin 11y agoBuying an option only risks the cost of the option.
- eru 11y agoYou describe selling a call. Not buying a put. (jessaustin is right about these.)
- sk5t 11y agoNo, I described the practical downside exposure of a short (or, the trader could put in a stop). It is no more "unlimited" than is the downside of buying a bunch of ultimately worthless options.
- eru 11y agoUnless your options trade on an exchange, and they have a clearing house behind them. (The government doesn't let the clearing house fail.)