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Episode Info

Episode Info:

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re answering the question, “Is a put option the same as short stock?” We get this question always and people are often confused when they start looking into or exploring options trading, wondering if a put option is the same as short stock. Now, while both of these things might behave very similar, they of course are not the same thing. Short stock carries a lot of additional capital requirements and is truly short the underlying stock security which means that it has a negative Delta of one which means that if the stock goes down by $1, then the short stock should profit by $1 as well.

With a put option on the other hand, you're basically taking a leveraged position in potentially short stock and it doesn't necessarily mean that the put option will move in parity with the short stock. Oftentimes, we find put options that have a Delta of say 50 and so, as a result, when the stock goes down by $1, the put option contract might increase by just half the amount or 50 basis points on the dollar. Again, they do act very different, they try to mimic each other, but in many respects, you have to understand the differences not only in the capital required for each of the different styles of trading, whether it's put options or short stock, but also for the potential payoff and time decay aspects. Hopefully this helps out. As always, if you guys have any questions, let us know and until next time, happy trading.

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