buying puts and having no investment expertise. yeah that is going to end well.

As long as it's only a small percentage of their portfolio, seems safe enough. The max loss is the put premium. Are you getting it mixed up with selling puts, where your losses are unlimited?

That's not right either, your downside for selling puts is limited by the strike (worst case is you pay K for a stock worth 0). Short call positions are the ones with unlimited downside (worse case is that you get K but have to cover the cost of arbitrarily high priced underlying).

Short option positions which gp is referring to aren’t really...optional. You sold the option to someone else.

Suppose you sell 1 put for 1 dollar with a strike of 100 dollars. The worst case scenario is that the asset decreases in price to be worth 0 dollars. The buyer of the put then exercises their option to sell the asset to you for 100 dollars, hence in total you lost 99 dollars.

As a general matter, the most you can lose when selling a put is the strike price - premium.

You’re confusing selling (writing) options, which come with being on the receiving end of the exercise as an obligation.

Puts have limited downside?

Buying put options has limited downside in the same sense as buying a lottery ticket. The worst case (and not an uncommon case) is that they turn out to be worthless and you only lose the money you spent.

Yes. Stocks can’t drop below 0.

I think hgibbs is confused between puts (a contract for the ability to sell at a price) and shorting (borrowing to sell immediately and buy back later), but your comment isn't quite right either.

Shorting has unlimited downside, since it may be arbitrarily expensive to buy back the shares/coins that you borrow.

Puts, on the other hand, have a strike price. A contact to be able to sell Bitcoin for $30K is worthless on the expiration date if the market price is $40K. Anybody can sell at a better price than your contract on the open market. The market price going to 0 is the best thing for the owner of a put option. "Stocks can’t drop below 0." is actually a bummer for the put owner. If a stock could go lower, the put owner could sell the asset for even MORE than the market price of the asset.

What hgibbs probably wants to hear is this: The worst case for a put owner is for the put option to expire worthless since the market value of the asset is greater than the strike price when the option expires. The maximum downside is a contract worth $0.

If you want to pay a premium to be able to sell bitcoin at the end of the year for $20K, but the value is still $30K on December 31, your put option is worthless, and that's as bad as it gets.

...UNLESS you're buying puts on margin without a stop-limit.

My question was in relation to the parent comments claim that buying puts can cause unlimited losses - I was pointing out that this was wrong. The original comment seems to be edited now

Gotcha. That makes sense.

They can but only if all market participants act irrationally. Just want to make it clear that it’s not a law of nature that stock prices are bounded at 0.

One could imagine a different legal regime in which equity ownership actually carried unlimited liability, in which case negative prices would most certainly be a thing.

If it's so biased and opinionated, what is its value to HN readers? Is there any merit to his opinion? Is there any proof?

Maybe next month the guy can write another post: "How to lose money quickly" and gets on the front page again! Win-Win!

By his own analysis, he won't lose much, but enough to get annoyed. Looking forward to it! Anyway, I'll give the post this, though. It prompted some good replies, to no credit to the original author.

I don't know what other people found interesting, but personally I found it mildly interesting to see the reasoning about choice of financial vehicles to "short bitcoin" without actually literally short-selling bitcoin.

The author's opinion about bitcoin is neither here nor there.

I agree. One of the problems with betting on the decline / collapse of an asset is finding counterparties that are likely to pay up if you win (a problem that some investors faced in 2008, e.g.), and while you may quibble with the author's investment thesis that there will be a decline / collapse, I think his choice of counterparties is quite sound.