Ways To Short a Stock without Shorting the Actual Stock ?

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  • Oct 2nd, 2020 9:46 am
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Apr 21, 2004
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Ways To Short a Stock without Shorting the Actual Stock ?

I am not ready to make the trade yet and I don't even know if over at ThinkorSwim, I can be granted Level 2 or 5 access haha. Still trying to learn a few option trading strategies.

Interesting to note was implied volatility on some stocks I'm eyeing to eventually "short" are just too much that as the article below says, it doesn't make sense to buy expensive put options on. ... ing-stock/

2 key bearish spreads:

Credit Call Spread
Credit Bear Ratio Spread

With the increase in volatility, it is usually not a good idea to purchase a put option when looking to take a bearish trade in a stock.

Besides the two trades below, anything else that makes sense if I am more bearish on a stock? Definitely just studying the possible scenarios at this point and I'm not singling out TSLA for sure. It's probably not the right time.

1– Credit Call Spread
Instead, let’s use something called a Credit Call Spread to take advantage of overpriced call options and avoid the trap of buying overpriced put options.

The spread:

Buy 1x TSLA 21 FEB 20 1100 CALL @ $47.90
Sell 1x TSLA 21 FEB 20 1000 CALL @ $62.00

Max Profit = $1,410 (credit)
Break even = $1,013.96
At what stock price is the maximum loss here, at $1,100 where the call bought is ATM?

So this trade is made if I don't expect the underlying to hit $1,013.96?

2 – Credit Bear Ratio Spread
This is a more advanced trade strategy, but it allows for a trader to have their cake and eat it too.

The Credit Bear Ratio Spreads will let a trader receive a credit for the trade if the underlying stock stays neutral to bullish.

In the event of a massive sell-off, the trader will have unlimited downside profits.

And for the “middle” of the chart, depending on how fast the stock sold off, you may never realize the max loss as increased implied volatility will keep your losses under control.

The trade:

Sell 1 x TSLA 21 FEB 20 920 put @ 110.20
Buy 2 x TSLA 21 Feb 20 735 put @ 32.55


If the stock stays neutral to bullish, you will receive max credit on the spread

Max credit profit = $45.10 per contract
Max loss = $139.00 per contract
Max Profits = unlimited

So which of the two trades are ideal for shorter dated bets 30-45 days before expiry (option values eaten up by time decay ) and which one for longer dated bets going out more than a year? It's looking more like for short term bets, the 1st trade makes more sense and for longer bets, the 2nd strategy makes much more sense. Any other option trades that have a maximum instead of unlimited loss?

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