Overall for the common person I'd agree, but I assume we're all more or less hackers here and for us, I'd say "If you have to ask, ask and learn, then do it".
If everyone followed your advice no one would ever do anything, as we all begin somewhere, something that should OK.
Of course, don't do million dollar trades when you begin, but we shouldn't push back on people wanting to learn, feels very backwards compared to hacker ethos.
we shouldn't push back on people wanting to learn but we should really point out very loudly that not fully understanding something like shorting can turn a small investment someone was fully ok with losing into a life altering bankruptcy due to a margin call.
To expand on the original reply to you - shorting companies, or engaging in almost any stock-based activity beyond “buy and hold,” typically entails much, much higher risk than just buying and selling stock. The most you can lose when buying a share is the purchase price, and that’s fairly unlikely, but when you start getting into even options/etc, you’re magnifying your risk - small swings in the market can lead to large and disproportionate losses, and when you get into shorting in particular you can lose far more than your initial investment. This is why you’re getting the reaction you’re getting - because the thing you’re asking about is sufficiently risky that if you're asking on Hacker News (and not, say, asking a professional), you don’t understand the risk profile well enough to do it “safely.”
That, and because snarky answers get more imaginary internet points than helpful ones.
> you don’t understand the risk profile well enough to do it “safely.”
Since when is this a problem? For gods sake, let people fuck up and harm themselves if they're stupid enough to take the risks, or not.
I think it's fine to say "Remember, this is risky because of A, B and C, but here's how to do it anyways..." but straight up "If you have to ask, you shouldn't" seems so backwards and almost mean, especially when we talk about money which is mostly "easy come, easy go". Let the fool be parted with their money if that's what they want :)
I mean, there’s risk and there’s risk. If someone comes in asking “how do I mod my phone/ebike/toaster”, sure, caveat commentor and all that. If someone comes in asking “how do I make dioxygen difluoride,” that’s a different category of risk. OP can do whatever they want, but I’m not in the habit of giving guns to people who don’t know what they are without making sure they know which risk category they’re in.
Dependant on strikes (assuming at the money, assuming naked short) you would still profit if it stayed the same, or went up a little in price. Selling options is also being short volatility, so the 'bet' is that less will happen than is expected and, in the case of selling calls, with a preference for happenings to be downward.
A downward move could also see volatility go up significantly and increase the value of the options you are short, especially longer dated options.
Technically, yes. But you have to own the stock first (‘cuz writing “naked calls” is not for the faint of heart). Easier and less complicated to just buy puts, especially if you’re looking up “money laundering” in the dictionary.
You buy an option that has a particular cost, which gives you the right to sell stock at a specific price in the future (the "strike price"), within a certain time frame. Typically, these are denominated so that you contract to buy or sell 100 shares. In a "naked" put, you don't actually have the stock that you propose to sell. In the future, you plan to "exercise" the option by buying the stock at the market price. and then immediately sell it at the contracted price.
A put option represents a belief that the price will fall, which makes "right to sell the stock" valuable. Similarly, a call option represents a belief that the price will rise. Both can be bought and sold; you do not "make" them but rather trade in them, just as you would in stock. But the relationship between the stock price and the result from an option is not linear; selling a put and buying a call are both nominally "long" the stock, but are not equivalent.[0]
When you buy an option, you are always immediately out for the cost of the option itself (the "premium"). This is separate from the strike price. It's the market's assessment of how much your "right to sell later" is worth, in itself. By doing this, you are speculating that you can recover that money later, based on how the stock performs. (Depending on your strategy, this can involve buying or short-selling the "underlying" stock, as well as other options.)
So if you buy a put, you pay money (the premium) up front, and you potentially just lose that money completely. Sane options strategies take your entire portfolio into account, and use options to hedge the risk profile of the rest of the profile (rather than trying to use the rest of the profile to justify taking on risk using options).
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Some details, and further exploration.
Options represent essentially zero-sum speculation on top of the actual price movement. For example, holding everything else constant, a call option increases in value as the price of the underlying increases (the right to buy stock at a fixed price becomes worth more, when the stock is worth more). When a company does well, everyone who holds the actual stock shares in the company's good fortune; but the profit of call holders comes at the expense of those who sold (or "wrote") those calls.
The option is priced according to market expectations of risk (how likely is it that the stock's price will fall below the chosen mark?), and according to duration (the longer you reserve the right to exercise the option, the more likely it is that you'll get a profitable opportunity; therefore, the more valuable and thus expensive the option is). For long-term options (especially now that interest rates are non-trivial) there's a second meaningful duration factor: buying an option comes with the opportunity cost of not holding cash (or treasury bonds) for that period, and that also has to be priced in.
"American" options give you the right to exercise at any point before the deadline; "European" options only allow you to exercise at the deadline. This is also priced in; having more flexibility is worth more.
If you have chosen well, the market price for the stock goes down by a lot. This allows you to profit when you exercise the option.
If you have chosen poorly, you never get the opportunity to profit. Your options "expire worthless"; an option to sell at a point that has already passed has no value. You have been left holding the bag.
In between, you might exercise in a way that recovers only part of the premium you paid.
Much riskier is to sell options against securities you don't hold. (You will likely be legally barred from attempting this at all, and even wealthy experienced traders will be required to hold some percentage of the security value that their options represent.) You are hoping that the option expires worthless, so that you simply claim its value uninhibited. If it doesn't, you may be "assigned" i.e. legally on the hook for someone else's exercise of the option. If you sold a put, you may be forced to pay an inflated price for a stock that crashed. If you sold a call, you may be forced to acquire stock in order to sell it at a discount in order to fulfill your option. The potential loss for selling a put typically far exceeds the maximum potential profit; the potential loss for selling a naked call is unlimited (as we suppose the stock's value can go to infinity).
But if your sale of a call is "covered", or your sale of a put is "cash secured", this means you fully own the security (underlying stock, or liquid assets respectively) corresponding to the option. The cash secured put still incurs the risk of wiping out your entire cash supply, much as if you'd simply bought 100 shares directly, and it puts a hard limit on your upside. But it lets you profit from the stock without actually holding it.
Given sensibly chosen strike prices, covered calls actually end up with a similar risk/benefit profile. As the stock goes to zero, all you end up with is the option premium, because you were holding the stock. If the stock does well, your net profit is limited to the option premium, because the profit from holding the stock cancels out the liability of the option. (Equivalently: you are required to sell the stock at the strike price, but you already have that stock; no matter how high the underlying stock value gets, you can only claim the strike price.)
[0]: Doing both gives risk exposure roughly equivalent to holding the stock, without actually buying it. This is called a "synthetic long". As you can imagine, that is effectively unlimited leverage in itself, and if you attempt it you will be required to hold a significant amount of cash to limit your leverage, and jump through a lot of regulatory hoops to prove both your competence and solvency. I didn't mention this at the start, because you need the details to understand it.
I did exactly this last Friday as an experiment and Claude Sonnet 4.5 recommended that I go long in an inverse ETF lol. When I told it that was terrible advice, it apologized and suggested buying puts.
If you are having to ask an LLM how to do it, I strongly suggest NOT starting with shorting.
Ask about Put options, which is what Burry is doing here — not even Burry is shorting for this situation.
I'm no expert trader, but the potential losses for shorting are unlimited. You borrow X shares of a stock, and will have to repay your loan in that stock, whatever it costs. If the trade goes against you, you will get a margin call and will need to (re-)fill your account with whatever funds are necessary to pay that amount, or all your other holdings and that position will get sold automatically at whatever that loss amount is. Situations called a "Short Squeeze" arise not infrequently, and even though they are temporary, they can cause a stock price to skyrocket, specifically because so many people are shorting it, and everyone needs to buy to fill their short positions & margin calls. The fact that the price soon falls again helps you not one bit. Plus, the maximum profit is limited to the value of the short. E.g., you short the stock at $100/share, if the company goes bankrupt, you can repay the shares for $zero, making $100/share; but you could lose $1000/share if it goes up 10x.
In contrast, purchasing Put options, the right to sell the stock at a certain price, limits your loss to the cost of the Put options — if your idea turns out to be no good, it just fails and expires worthless.
Do you think they're overpriced? Or do you just not trust retail investors to understand the effective leverage, spread of outcomes etc.?
I'm told that covered-call ETFs generally underperform (in addition to being inefficient) and "generating income" is best accomplished by just selling shares as needed.
Options are always overpriced. They're fundamentally an insurance product. You should expect to lose money when buying insurance. If you're hedging, you should expect to lose on your options leg. Same as with any insurance product.
Options are governed by tight mathematical relationships between each other and with their underlyings. These can be atomically arbitraged, i.e. you don't need someone else to believe your thesis to make money. As a retail investor, you are on the other side of a system designed to efficiently price and reprice options to ensure the dealer doesn't lose money.
> I'm told that covered-call ETFs generally underperform (in addition to being inefficient)
I haven't looked into covered-call ETFs, but my prior is strategy ETFs are bullshit even when the underlying strategy may not be.
> "generating income" is best accomplished by just selling shares as needed
It works as long as you understand you're selling the options below their expected value (EV). It's closer to EV than an option buyer, on average. But the price you get will always represent less reward for risk than my option pricers running on microwave-linked FPGAs a few feet from servers in New Jersey and Chicago can bid and offer.
If that works for you--if the benefits of income or whatever outweigh that theoretical cost--you can do it sensibly. If you're selling puts to enhance your returns, you're probably going to, at the very least, lose your accumulated gains at some point.
TFA says "bought put options". One option (either PUT or CALL) is typically 100x the shares (but mini lots of 10x exists or at least did exist at some point).
So he bought (he's long on the PUTs) 10 000 PUTs on NVDA and 50 000 PUTs on PLTR. I don't know at which expiration dates nor at which strikes.
A PUT option can be either a bet (like in TFA) that an underlying shall go down below a certain price before a certain date of it can be an hedge when you own the stock, believe it could go up some more, but also want to be protected should it crash. Now of course hedging has a cost and it's not cheap: an option is an insurance. Even the terminology is the same: the buyer pays a premium and the seller (i.e. the one selling the insurance) collects that premium.
Now if you want to learn about full-on degenerate gambling, these last years there's been an explosion in "0DTE": options with zero day to expiration. Because they're 0DTE, there's very little "extrinsic" value in these. So it's a "cheap" way to get basically 100x leverage (either short or long).
Here's a small documentary of 5 minutes about 0DTEs:
I vouched for your post because the information is correct as far as I can discern. Perhaps others felt that you didn't warn strongly enough against engaging in such "full-on degenerate gambling"?
But the risk profile of options depends on more than date to expiration. Of course the strike prices matter, as well as the rest of your portfolio. The real "degenerate gamblers" are taking that leverage without compensating for it. But for example, holding something with 100x effective leverage can be balanced out by only putting 1% of your portfolio there and keeping the rest in cash. (This will generally be inefficient and there's a high chance you won't do as well as just holding the underlying.)
