Personal Finance & Money Asked on February 11, 2021
As far as I know, if I want to sell short, say, $100 worth of stock I need to post $150 in cash collateral and pay some fees each day. Another way is to buy a put option. In that case, I need to pay the bid-ask spread, and the option is losing time value as I hold it. Which is cheaper?
Traditional margin is 150% of the short proceeds (brokers can require more) but the proceeds are used against the 150% so effectively, the margin requirement is 50% (cash or marginable securities).
A drawback to shorting stock is the borrow rate. Each day it's the closing price of the stock times the borrow rate times the number of shares short. If it's a high borrow rate, this fee can exceed the cost of the put in no time at all.
And then there's the inherent higher risk of a short position compared to buying a put but that's a different story.
The cheapest way to take a short position is to sell a naked call and use the proceeds to buy a put at the same strike. It can be done for little to no cost and is called a synthetic short.
Answered by Bob Baerker on February 11, 2021
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