3 ms·
Not sure what this metaphor adds, especially because it's inaccurate. A short put does does not have unlimited downside as the value of the underlying can only
by high_derivative 6y ago
Not sure what this metaphor adds, especially because it's inaccurate.
A short put does does not have unlimited downside as the value of the underlying can only go to zero. A short call has unlimited downside as the value of the underlying can go arbitrarily high.
- short_sells_poo 6y agoFor sure, but the return distribution of equities at least was historically highly negatively skewed. There can be upside volatility in stocks, but it has either no persistence or it happens just after a massive crash. Taking this skewness into account, it is not unreasonable to consider short puts more risky in a very handwavy and back-of-an-envelope calculation. Of course, other assets with more symmetric distributions (FX?) might have no such bias.