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With a put, you can only lose what the put is worth. With shorting, you can in theory have infinite loses.
by candiddevmike 11mo ago
With a put, you can only lose what the put is worth. With shorting, you can in theory have infinite loses.
- the__alchemist 11mo agoYea; true. My thought when evaluating these was "I am confident the price will drop significantly within the next 6-18 months. But if I screw up the timing, or it drops to 1/3 the value instead of 1/2 etc, I lose money or break even. While I'm reasonably confident the normal short will pay off, since I don't have to nail the amount or timing.
- ProjectArcturis 11mo agoWith shorting, you run the additional risks that you could lose the borrow and be forced to buy back at any time. Or get margin called if the price moves against you. With puts, you have to get the timing right, but no external factors can force you out of your position.
- nickff 11mo agoEven if you're right, but the value goes up before going down, you can lose out with a short, if your counter-party makes a call for collateral you don't have.
- JumpCrisscross 11mo ago> With shorting, you can in theory have infinite loses This risk can be hedged with futures and options.
- busyant 11mo agoAgreed. But it adds complexity. Sometimes you just want simple leverage, which the puts can provide.
- javcasas 11mo agoCongratulations, you just invented the synthetic put.
- JumpCrisscross 11mo ago> you just invented the synthetic put Short and a call, yes. Short and a future, no. Either way, infinite losses isn’t an unavoidable downside when it comes to shorting. Stock-borrow and margin risks are.