Zythryn said:
Forgive me, I don't know much about short selling and options.
Aren't they a much shorter term than a year?
Depends on the stock and what options are available.
In looking at Thinkorswim (desktop client), for TSLA, I see April 2013 options (expired today), May 2013, June 2013, Sep 2013, Jan 2014 and Jan 2015. More options come out over time (it's complicated).
See
and
. The latter has prices for June 2013 expiration. They should expire on June 21, 2013. Monthly options expire on the 3rd Friday of a month.
Some securities have weekly options, quarterlies and even minis. See
.
The numbers in ( ) are the # of days until expiration. The 13, 14 and 15 refer to 2013, 2014, 2015. The minis (these are really new) have a multiplier of 10 instead of the usual 100.
The numbers after the month on the weeklys refer to the week #, not the day. So APR4 13 actually refers April 26, 2013 expiration as weeklys expire on Fridays. That's why it has a (7) as it expires 7 days from now.
The term isn't necessarily that important, but you want to time the expirations right w/when you expect the move to be.
There are a bunch of possible bearing bets such as buying a put, buying a put spread, selling naked calls (bad idea, IMHO), etc.
N952JL said:
OK I give up. What does "short ing" it mean?
If the Wikipedia entry is too much, shorting is the opposite of buying a stock and hoping the price will go up (going long) Example: buy at $100, hope it goes up to $x amount, you sell at the (hopefully) higher amount. Your max gain is potentially infinite, your max loss is the price you paid for the stock (* # of shares).
When you short, you borrow shares and sell them, hoping the price will go down. (e.g. sell at $45, hope it goes down to whatever, best case is $0, buy back stock at hopefully lower price to close out your position). In his case, your max loss is unlimited but max gain is if stock goes $0.
So, to use TSLA as an example, let's say you shorted TSLA today by selling short 100 shares and you did that at the closing price (was $47.83). You'd receive $4783 credit in your account and would be charged interest. If TSLA gets in trouble and becomes $1/share, you can then close it out by paying $100 --> $4683 profit. If instead TSLA hits $200/share and you can't take the pain anymore, you can close it out by paying $20,000, which is a massive loss. If TSLA hits $1000/share and keeps heading higher and you can't take the pain, now it'll cost you $100K to close it out, and so on.
Back to options, I'm having trouble finding a CNBC Options Action video where they always cover stocks vs. options but http://video.cnbc.com/gallery/?play=1&video=3000160921" onclick="window.open(this.href);return false; has an example of buying a put spread on TWX but the trade went bad. They did compare the loss if you did that play vs. shorting 100 shares of TWX.
edit: Found one. Skip to ~6:15 of http://video.cnbc.com/gallery/?play=1&video=3000159246" onclick="window.open(this.href);return false;. The reason why they say 55 cents earlier and $55 later is because of the multiplier (http://whatstrading.com/2009/05/21/options-101-the-multiplier/" onclick="window.open(this.href);return false
. If you buy/sell 1 contract, you need to multiply the price you see by 100.
The max profit here is $145 and max loss is $55 (the cost of the trade). As they point out, if you shorted the stock instead, your risk is potentially unlimited.