5 ms·

Put options have their own enormous downsides. You pay a large premium up front, and you lose everything if the stock either A) doesn't change value at all or

Put options have their own enormous downsides. You pay a large premium up front, and you lose everything if the stock either A) doesn't change value at all or B) collapses later than you predict. Both methods are a rotten deal. That's quite unfortunate for society as a whole, since it means there are very few people with the incentive to deflate bubbles and frauds.

toast0 8y ago
Put options cap your downside, and cap your time horizon. You can pay the premium for a very long horizon if you want -- if you think the company is going to fail all the way to zero, the prices pretty far out of the money are often pretty low even at 2 years out. It would be pretty disappointing if the stock kept climbing and then crashed 2 days after the options expired; but at that point you might have given up on your traditional shorts as well.
- bluquark 8y ago
  It would be even more disappointing if the stock barely moved, and then crashed 2 days after the option expired. In that event, the put goes to zero and the traditional short wins the jackpot. A more abstract way to make the same point is that a put or call is making a bet about volatility, whereas traditional long or shorting is a pure directional bet.
  - slededit 8y ago
    The traditional short has to close their position at some point is well. It’s never an unlimited duration.
  - nodesocket 8y ago
    I know this pain. I bought some Jan 19' $10 put options in Kodak right after they announced their nonsense cryto abomination. I knew it had run on speculation and was going to come down. The problem was I timed it wrong. By Feb 7th after my options expired Kodk was trading in the mid $2 range, down from $11. I lost my entire option bet, oh well. Lession learned.
    - bluquark 8y ago
      I think frequently about buying puts but never pulled the trigger. It's so, so tempting because in cases like that, you are 100% sure that you're right, and in fact you actually are right. The last time I thought of buying puts was a month ago when Tesla was at 350$, propped up by the "funding secured" claim. It was so obviously bogus and a sign of desperation. But I was terrified of buying an all-or-nothing lottery ticket, so I didn't. That one would've been a big winner and now I feel the pain of missing out. Hearing your similar Kodak story is useful to reinforce my resolve that I should just stay with vanilla investing strategies.

toast0 8y ago

Put options cap your downside, and cap your time horizon. You can pay the premium for a very long horizon if you want -- if you think the company is going to fail all the way to zero, the prices pretty far out of the money are often pretty low even at 2 years out. It would be pretty disappointing if the stock kept climbing and then crashed 2 days after the options expired; but at that point you might have given up on your traditional shorts as well.

bluquark 8y ago
It would be even more disappointing if the stock barely moved, and then crashed 2 days after the option expired. In that event, the put goes to zero and the traditional short wins the jackpot. A more abstract way to make the same point is that a put or call is making a bet about volatility, whereas traditional long or shorting is a pure directional bet.
- slededit 8y ago
  The traditional short has to close their position at some point is well. It’s never an unlimited duration.
- nodesocket 8y ago
  I know this pain. I bought some Jan 19' $10 put options in Kodak right after they announced their nonsense cryto abomination. I knew it had run on speculation and was going to come down. The problem was I timed it wrong. By Feb 7th after my options expired Kodk was trading in the mid $2 range, down from $11. I lost my entire option bet, oh well. Lession learned.
  - bluquark 8y ago
    I think frequently about buying puts but never pulled the trigger. It's so, so tempting because in cases like that, you are 100% sure that you're right, and in fact you actually are right. The last time I thought of buying puts was a month ago when Tesla was at 350$, propped up by the "funding secured" claim. It was so obviously bogus and a sign of desperation. But I was terrified of buying an all-or-nothing lottery ticket, so I didn't. That one would've been a big winner and now I feel the pain of missing out. Hearing your similar Kodak story is useful to reinforce my resolve that I should just stay with vanilla investing strategies.