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Comment by jfengel | Hacker News Reader

The market can remain irrational longer than you can remain solvent. The market will tolerate infinite BS for arbitrary periods of time.

Which also means being careful of short selling. It can put you at unlimited risk even if you are absolutely right.

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> Which also means being careful of short selling.

There are a number of businesses I know are badly run and will eventually fail, but I cannot find a way to monetize that safely without knowing the timeline for failure.

If you are the only person who thinks that it might fail, one cent put options will be free and you can buy them until the price hits zero, and then you can make a cent.

For example, the opportunity to sell $TSLA for $180 in one month costs about thirty cents right now. Keeping this up for ten years would cost $36.

That'd work well for a catastrophic Eron-style collapse, but many companies die a slow death, like Sears.

With Sears like companies you can take a very small short position and then reinvest the money from the sale going long S&P500 type stuff. That's roughly what Chanos did. It has to be small position as a percent of your portfolio in case it decides to go up 10x when you are not looking. I think Chanos's results over a decade were something like 0% on the shorts, 50% on the longs the money was reinvested into.

Put options are worthless once the price of a stock hits $0. At that point, the stock will be frozen and/or de-listed and your ability to exercise your put will be gone.

There are otc buyers for these, but they probably won’t look at $36

Per grok it's not true and per me it's not a problem in practice.

A put option is a contract between buyer (me) and a seller of the option. The contract guarantees me a right to sell stock at a strike price to the seller of the option.

If current stock price is lower than put contract strike price, I can exercise the contract and make money: I buy the stock from market at e.g. $78 (current price) and sell at e.g. $128 (strike price).

If stock is delisted the contract is still valid and enforced by the clearing house. They'll just assume that current price is $0 and force the option seller to just fork me cash without receiving the (unavailable) shares.

But it doesn't happen in practice because stocks are not just delisted without warning.

For example, Bed Bath & Beyond announced bankruptcy in April 23, Nasdaq announced delisting in April 25 and trading stopped in May 3.

So there was a week for option holders to settle their trades.

Grok is not a reliable source. What will happen is that if you are lucky, some institution with worthless shares will buy them from you at a very big discount OTC. If you are not lucky and your broker sleeps on you (since that deal comes from your broker calling someone on the phone, it's not automated), you will lose the options.

It doesn't work like this. The stock might fall around $10-$20 every month in the worst case scenario. In which case the premium of $180 will keep rising every week, 90% of which will expire worthless.

You have to buy really farther out or really far off strike both of which have nearly zero probability ( delta is nearly zero and less than 1)

> It can put you at unlimited risk even if you are absolutely right.

The risk is in borrowing, not short selling. How many momo jockies out there think about the "unlimited risk" from buying Tesla on margin? In that case, you're shorting USD, but no one talks about that because it always will be fashionable to short USD.

Just like it always will be fashionable to short JPY, for carry and more. Until it's not.

You can short USD by buying Bitcoin or a similar non-correlated asset but how could buying a usd correlated asset (TSLA) be shorting?

Stocks are generally not considered tied to currency- if the company has some fundamental value, that should be inflation proof.

So technically buying almost any stock can be a way of shorting the USD in that you are selling it now and will buy it back later.

The risk - besides that of the company itself- I suppose is that if you have massive deflation you will end up with less USD. I don’t think anyone is worried about massive deflation of the USD, since the Fed can and would prevent that.

Stocks have been a great inflation hedge in the long term since they’re usually backed by hard assets and people, not numbers in computers. Short term obviously some businesses are hurt by inflation and some benefit.

You can also short the USD by buying a different currency. BTC would be more like shorting all currencies.

Buying BTC is shorting money printing by your government.

Today the only government (that I know of) committed to not printing money is Argentina but they have other issues affecting their economy and therefore inflating their currency.

Given that governments don't seem to have desire stop money printing any time soon, buying BTC is sound.

The 2010s called, they want their talking points back. The Fed has been doing quantitative tightening for the last couple of years while raising rates. Only towards the end of last year did they start lowering the rates again, but they are still doing QT. So, there is no, what you call, "money printing", which in itself is a complete misnomer as it ignores the complexities and actual transmission mechanisms of "quantitative easing". In either case, Bitcoin has proven that it offers no hedge against anything; it is merely a risk asset with no intrinsic value that tends to rally with all the other rubbish like meme stocks.

> Today the only government (that I know of) committed to not printing money is Argentina [...]

You don't know many countries, do you?

Argentina still prints more money, and has higher inflation, than most places around the world.

Singapore and Switzerland are some examples of nicely conservative monetary policy.

Short selling a stock means borrowing shares and selling them.

Short selling has unbounded downside. If you borrow $1,000 to short sell TSLA and then it soars you might end up losing $100,000.

If you borrow $1,000 to buy TSLA your downside is limited—you can’t possibly lose more than $1,000.

In either case, your broker will liquidate you around $0. Not guaranteed, but very likely. This is the key risk.

Tether provides a good illustration of the principle I mentioned-- which I concede is a bit theoretical in the case of USD:

Tether is supposed to trade at $1 and gets press when it trades below. But, sometimes it also trades above, at $1.01, $1.02 and even perhaps $1.03. So, if you sold a lot of it thinking trading higher was impossible, you can be surprised.

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