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by Afforess 3366 days ago
This is why you should purchase put options instead of short selling. Exposure to short selling is theoretically infinite. Exposure to put options is just the price you paid for the option.

Shorting generally should only be for companies whose solvency is in doubt.

4 comments

This is wrong. You should not be trading options if you only have a directional view of a stock, as you will get eaten alive. Options pricing involves much more than just the underlying stock. Most importantly, as another poster said, there is implied volatility. There is also time risk and interest rate risk priced into the option.

With options, you could be right on direction, and still lose money.

If your strategy is to hold them in order to exercise them you do not need to worry about their pricing.
With put option you pay a big premium for the right for someone else to take that risk. If the company has a high volatility like Tesla you will pay a big premium to buy that option.
I wish people could buy something like an "implied short", which would basically be an index minus Tesla.
In general, I wish there were safer ways to short.
Upside insurance isn't free. There's no free lunch.