Do you ever short stocks, as opposed to buying puts? (September 24, 2002)
Yes if we see a really good short with no option chain or if we really like the short but the options do not have a good price/delta/anticipated fall mix (i.e., given the price and delta and how far it could fall, the return is not good enough for the risk). One of the reasons we like buying put options is that our risk is defined heading into the play. If something bad happens the worst we can do is lose the investment. With shorting stocks in theory your potential downside is unlimited. Of course you would take the money off the table on a move against you, but it is still a potentially unlimited risk.
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