Hacker News Reader

Comment by candiddevmike | Hacker News Reader

With a put, you can only lose what the put is worth. With shorting, you can in theory have infinite loses.

Yea; 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.

With 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.

Even 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.

> With shorting, you can in theory have infinite loses

This risk can be hedged with futures and options.

Agreed. But it adds complexity.

Sometimes you just want simple leverage, which the puts can provide.

Congratulations, you just invented the synthetic put.

> 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.

Reply on news.ycombinator.com