Dale and Thread:
<DEFINITELY *OT*>
This is not a personal attack, and I apologize to the thread for extending this fairly ridiculous semantic quibble. But Dale, your credibility as an investor, already somewhat strained as you know, is further strained when you make statements like the following:
If you take $50,000 and short a stock vs taking the $40,000 and buying PUTS. Both are short positions, the $50,000 PUTS is a leveraged short position and is much more aggressive.
No. There is a very simple definition of a short position that is not open to debate. Going short is not simply making a bet that the value of something will decline. It is selling something you don't own (usually but not always via borrowing it) at a price that you believe is higher than the price at which you can buy it back later.
Your PUT position is not "more aggressive" than a genuine short for the same amount of money, even though the put position in your example could easily result in a much larger swing either way. This is because by definition, the downside risk on a genuine short position is not limited; as the price of the stock rises, you lose without limit until you cover. The downside risk on puts is limited to your bet.
Regardless of whether you claim you can stop yourself out of a genuine short position if things go wrong, the possibility of uncontrollable risk, however unlikely, still exists, and it is that possibility that defines a short. You can't go short by buying something. You can only go short by selling with a potential need to cover. But you buy puts. Therefore a put position is not a short, even though both are bets against the stock.
Now if you had bet against Sun by selling naked calls, you could rightfully claim that you had a short position of some kind, since there again the downside risk is theoretically unlimited during a period of time. (Dale J.: "I really took these suckers who actually paid me a premium for the right to buy SUNW at 80 in April 1999, when we all know it's never going above 68! Damn I'm good!")
Do you agree? Off-topic comments welcome.
Regards and apologies,
--QwikSand |
