re: #94 Wendell Zurkowitz ((slave to the waffle light))

then it starts to make sense to short stocks that are already higher in value than a piddling $10

Doesn’t matter, really: you can short a million shares of a stock at $10 each or ten thousand shares at $1000 each and it works out the same. The stock price can’t go below zero but can go arbitrarily high.

There are options that can do something similar: instead of borrowing a stock, you buy put options that allow you to sell a stock for a certain strike price in the future. The put option is a contract that allows you, but does not force you, to sell a set of 100 shares of the stock to the issuer at a given date in the future.

So, if I buy one put option for a stock with strike price of $100 with expiration date of 1 April, and the stock price at the end of March is $10, then I can buy a hundred shares of the stock and make the issuer pay $100 for each of them, making me $99 thousand. But, if the stock price is $200 at the end of March, I can toss the contract away and don’t owe anybody anything. Obviously the price of the put contract depends on what the expected stock price will be, and they can be freely traded, so usually people don’t end up exercising them but just trading them around until the expiry date. However, the most you can ever lose is the price of the option.

There are a bunch of technical and financial differences between short selling and buying puts, and it ties you to an expiry date, so it’s not quite the same thing, but you’re not going to be clobbered by a short squeeze.