>Short selling is basically equivalent to put options. Crucially, in both cases, as the price goes up the potential loss increases, theoretically unbounded (!).

>Short selling is basically equivalent to put options. Crucially, in both cases, as the price goes up the potential loss increases, theoretically unbounded (!). A put option is the option to sell a stock at a certain price on a certain date. If you are buying put options, your exposure is only the cost of what you paid for those options. If the stock price rises and remains above the strike price of your put options on expiration day, your puts simply expire and become worthless. If you are selling put options your maximum exposure is the difference between the strike price and $0, as the stock cannot fall below $0. This is distinct from short selling where you are essentially borrowing shares and you have to buy them back later at whatever the market price is. That is where your potential loss is theoretically infinite as there is no upper limit to how high the share price can go. The same can be said for selling call options (when you don't own the underlying shares, which is called selling covered calls). When you sell call options, you are essentially selling the right for someone to buy shares at a fixed price on a fixed date. If the shares soar above that price, and you don't own the underlying shares, you are forced to buy those shares at whatever the market price (which theoretically has no upper bound) is and sell them to the option holder at the fixed price of the call.