[CHY872]

Naked shorting certainly leads to unlimited losses, but it’s not the only kind.

Simple example is that i can buy a put option in some company. If the stock price falls below that point, I buy shares and sell them to the option writer and make a profit. My maximum loss is limited to the amount I spent on the option.

Likewise the put seller has not taken unlimited risk - their risk is limited to the cost of the shares they’ve offered to buy at.

[huijzer]

The most likely winner of such schemes are the brokers who sold two things instead of one. Buying great companies at fair prices is much easier and, in my opinion, safer. Another argument: how many short seller billionaires are there and how many long billionaires?

[HDThoreaun]

Writing options is an incredibly competitive market, margins are very tight. The quant firms writing them only work because of the massive scale, they lose almost as often as they win.