We aren’t talking about penny stocks we are talking about a tech giant. At the scales that any ordinary investor is operating at there will be no liquidity issues with shorting it and if it is in your index fund the short and long positions will directly offset if you size it correctly leading you to have net zero exposure to SpaceX.
Yeah you're not wrong. I didn't think about it that way because you can't really break something out of an ETF basket, and you also don't control the ETF basket, but if you think those risks are minimal it's probably fine to just compare dollars-to-dollars.
Personally I would still probably go with the long put strategy unless the price difference is exorbitant.
No, because the unlimited risk of shorting is balanced (hedged) by the unlimited upside of holding the same number of shares via the ETF.
You cannot however sell only SpaceX shares from your ETF to cover your short's losses. So due to liquidity issues I wouldn't recommend your strategy.
What are you talking about? You don't need to touch anything about your ETF. You just have to short a single name on the side.
Also there is no liquidity issue, we're talking SP500 names here, you'll pay GC, which should be around 25bps as the other comment mentions.
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We aren’t talking about penny stocks we are talking about a tech giant. At the scales that any ordinary investor is operating at there will be no liquidity issues with shorting it and if it is in your index fund the short and long positions will directly offset if you size it correctly leading you to have net zero exposure to SpaceX.
Yeah you're not wrong. I didn't think about it that way because you can't really break something out of an ETF basket, and you also don't control the ETF basket, but if you think those risks are minimal it's probably fine to just compare dollars-to-dollars.
Personally I would still probably go with the long put strategy unless the price difference is exorbitant.
> also don't control the ETF basket
The ETF is this case follows the index, so there's really no surprise.
> I would still probably go with the long put strategy
Just, don't. There is a world of complexity between a simple short, and entering an option contract with non linear pnl.
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It's not just a short, it's a portfolio of X short + X long. It's effectively canceling perfectly.