Re: Shorting versus buying puts:
I don’t use options because I rarely have a strong feeling about when a stock will move. By buying or shorting the actual shares, I need to be right about only the direction, which is easier than being right about both direction and timing.
Shorting is scary because your account gets marked to market every night. When a stock moves against you on the long side, it’s just a “paper” loss, but when a stock moves against you on the short side, real cash is deducted from your account. So you have to stay well-capitalized or you won’t have sufficient staying power –either mentally or financially.
Despite the above, there are compelling reasons to short. The reason most often cited is that shorting provides a hedge for a long portfolio against overall-market risk. An even better reason, IMHO, is that most stocks are overpriced most of the time and shorting requires less DD, on average, than going long!
Most public companies do a pretty good job of disseminating positive information about their company to the investment community; hence, when you short you usually needn’t worry about some “gotcha” biting you out of the blue.
With long positions, on the other hand, there seems to be no end to the amount of DD necessary to be comfortable.
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