Shorting a stock versus buying a put explained.
Short selling a stock and buying a put option on a stock are both ways to hedge against potential price decreases, but they work in fundamentally different ways:
Short selling involves borrowing shares of a stock from someone else, selling those shares, and then buying the shares back later to return to the lender. If the price of the stock drops, the short seller makes a profit because they bought the shares back at a lower price than they sold them. However, if the price of the stock rises, the short seller will incur a loss because they have to buy the shares back at a higher price.
On the other hand, buying a put option gives the holder the right, but not the obligation, to sell a stock at a specified price (the "strike price") before a certain date (the "expiration date"). If the price of the stock drops below the strike price, the put option holder can sell the stock at the higher strike price, and make a profit. If the price of the stock remains above the strike price, the put option will expire worthless and the holder will lose the cost of the option.
Short selling involves actually selling shares, while buying a put option is a financial contract that gives the holder the right to sell shares at a specified price
Short selling involves borrowing shares of a stock from someone else, selling those shares, and then buying the shares back later to return to the lender. If the price of the stock drops, the short seller makes a profit because they bought the shares back at a lower price than they sold them. However, if the price of the stock rises, the short seller will incur a loss because they have to buy the shares back at a higher price.
On the other hand, buying a put option gives the holder the right, but not the obligation, to sell a stock at a specified price (the "strike price") before a certain date (the "expiration date"). If the price of the stock drops below the strike price, the put option holder can sell the stock at the higher strike price, and make a profit. If the price of the stock remains above the strike price, the put option will expire worthless and the holder will lose the cost of the option.
Short selling involves actually selling shares, while buying a put option is a financial contract that gives the holder the right to sell shares at a specified price
- AltCtrlMoo
#shortselling #buyingputs
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