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Post by mnkdfan on Mar 14, 2014 0:59:41 GMT -5
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Post by babaoriley on Mar 14, 2014 1:18:53 GMT -5
Well, not exactly, but perhaps in this manner, although contorted: because this hedge of buying calls is available, people are emboldened to sell MNKD (or any other stock in which options are traded) short. If these options were not available, there would be fewer shorters, because every short position carries with it unlimited liability, as the stock could just keep on rising.
In the example you gave, the short sale is the basic strategy and the buying of the call option is the hedge.
Longs do similar things. Say you want to protect a long position in PCLN that has gone way up, but you don't want to sell any of your shares yet for tax or other reasons, you might buy a put, which will protect you in the event the stock tanks before you are ready to sell it.
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