3 ms·
Shorting a stock doesn't include the time element of options not to mention the relative lack of liquidity in derivatives as opposed to the equity. Saying that
by nemo44x 8y ago
Shorting a stock doesn't include the time element of options not to mention the relative lack of liquidity in derivatives as opposed to the equity.
Saying that, for most amateurs I'd recommend selling puts than shorting since shorting has unlimited downside risk.
Sometimes shorting against the box makes sense if you have the asset in another account and can't sell it there. You could short it in your primary account and then move the shares over which make take a few days locking in a sell price. When the shares arrive in your primary account it covers the short position.
- dm3 8y agoShould be "buying puts" if you replicate a short. It's not a clear-cut situation - in times of turmoil, when many traders are considering a short, the price of options will rise. If the situation then calms down and the price of the underlying decreases steadily, the drop in the option price due to lower volatility will offset a lot of the potential gain. When expressing a trade using options one has a lot more parameters to deal with in order to formulate the risk-reward properly. I'd say it's exactly the sort of thing most amateurs shouldn't be doing.
- nemo44x 8y agoYeah, meant to say buying a put - thanks! My biggest caution against shorting a stock VS a put is the potential loss. At least with a put your loss is capped.