Comment by BJones12
1 day ago
No, because the unlimited risk of shorting is balanced (hedged) by the unlimited upside of holding the same number of shares via the ETF.
1 day ago
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.
They're saying if the stock goes up and you get margin-called on the short, you have to sell index shares, you can't just annihilate the Tesla shares with the anti-Tesla shares and walk away.
1 reply →
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.
The ETF that seemingly arbitrarily changes its rules? In such a short time frame too? This change is going proposal to implementation in.. what, two weeks total? I don't know about you but I don't keep up on this stuff unless it hits the news like this one.
You are not entering a contract with a long put. You are buying a contract that, if you want, you can just let expire with no obligation to do anything. It's effectively simple insurance (as opposed to a short position, which is an actual liability, which will eat you alive in exceptional circumstances).
2 replies →