Buying puts - thoughts vs shorting?

[LongHaul]

I was curious of investors experiences and thoughts of buying puts on overvalued companies?

The math with shorting is quite negative long term as unlimited downside and being short producing assets is difficult.  What about buying puts though?  Any help greatly appreciated.

 

 

[ItsAValueTrap]

They are definitely better from a risk management perspective.  Of course you can lose money because you have to pay for the "insurance" value of the puts.  Your transaction costs will be a little higher with puts.

 

I wouldn't buy puts on companies that are merely overvalued though.

[anders]

I used to run a covered call fund.. short calls or long puts doesnt go well hand in hand with value investing approach... if you want to long puts on ie high tech comps you need to put it into a strategy over time, otherwise you are just speculating and thats not a game I believe anybody can master successfully.. how many didnt long puts and lost a lot of money on VW during financial crises, or tried to succesfully short cisco during it bubble.. maybe you will be succesful 9/10 but its the 10th that kills the performance.

 

So what I told my previous workplace and imo to other people is that these methods is a function of option strategy, generating maybe a yearly 5% yeild depending on vol. Its an investing strategy in itself and, if you want to couple that with ie value investing then it will likely turn into a speculation.

 

We allocate some percentage in a trade account for special situations purposes ie shorting stocks/bonds, risk arb, stressed credit, currency play etc trying to squeeze out some extra percentage points in performance, but never mix them with the other part.

 

My two cents,