4 ms·

Have you ever shorted a company? It really isn't advice you should be loosely throwing about - the potential downside is unlimited. It really is a tool reserved

by nikcub 10y ago

Have you ever shorted a company? It really isn't advice you should be loosely throwing about - the potential downside is unlimited. It really is a tool reserved for those with special broker access and a better understanding of what it means. Further, if anybody had actually followed any of the short advice that has been given in HN comments in the past 10 years, they almost certainly would have lost unlimited amounts of money. If you really want to put your money where your mouth is, post some bitcoin, a term period and a price target and see if anyone takes you up one it. I'd almost certainly book everything you offer on SNAP going to $0 in 5 years.

mikemintz 10y ago
One could buy long-term (LEAPS) put options to bet against a company, avoiding the unlimited downside of a naked short.
- nikcub 10y ago
  with a price target of $0 you could buy them all day, especially in a market where actual frauds and ponzi schemes don't go to $0
- deleted 10y ago
  [deleted]
- PhantomGremlin 10y ago
  It will probably take several weeks before it is possible to purchase put options on Snap. The cost of LEAPS is very high when they are purchased on speculative companies. For example, take Tesla. Tesla closed today at $250. To purchase an "at the money" $250 put dated January 2019 (aka a LEAP) would cost you $54. So TSLA stock would need to fall below $196 at expiration before you began to make money on it. That's a simplification because you could always sell your put early, possibly at a profit. Buying a January 2018 put would be cheaper, but still quite expensive at $37. To reduce the cost of a put you can buy one that is "out of the money". For example the TSLA $200 put dated January 2019 would be cheaper, only $31. However, TSLA would need to fall below $169 before you made any money at expiration. So, look at that last example. TSLA now $250, you pay $31 now and you don't make money unless TSLA closes below $169 at expiration. Math like that is why sophisticated investors often short stock rather than buy puts. They need to pay a price to "borrow" the stock to short but for many companies that price is quite low, below 10% a year. The cost of buying put options on the same stock could be two or three times as high as directly shorting the stock. When SNAP puts become available I expect the math to be much worse than for TSLA. It will cost A LOT to buy puts on such a speculative company. In trader talk, the "implied volatility" will be very high.

by nikcub 10y ago

mikemintz 10y ago

One could buy long-term (LEAPS) put options to bet against a company, avoiding the unlimited downside of a naked short.

nikcub 10y ago
with a price target of $0 you could buy them all day, especially in a market where actual frauds and ponzi schemes don't go to $0
deleted 10y ago
[deleted]
PhantomGremlin 10y ago
It will probably take several weeks before it is possible to purchase put options on Snap. The cost of LEAPS is very high when they are purchased on speculative companies. For example, take Tesla. Tesla closed today at $250. To purchase an "at the money" $250 put dated January 2019 (aka a LEAP) would cost you $54. So TSLA stock would need to fall below $196 at expiration before you began to make money on it. That's a simplification because you could always sell your put early, possibly at a profit. Buying a January 2018 put would be cheaper, but still quite expensive at $37. To reduce the cost of a put you can buy one that is "out of the money". For example the TSLA $200 put dated January 2019 would be cheaper, only $31. However, TSLA would need to fall below $169 before you made any money at expiration. So, look at that last example. TSLA now $250, you pay $31 now and you don't make money unless TSLA closes below $169 at expiration. Math like that is why sophisticated investors often short stock rather than buy puts. They need to pay a price to "borrow" the stock to short but for many companies that price is quite low, below 10% a year. The cost of buying put options on the same stock could be two or three times as high as directly shorting the stock. When SNAP puts become available I expect the math to be much worse than for TSLA. It will cost A LOT to buy puts on such a speculative company. In trader talk, the "implied volatility" will be very high.