1. There's usually a limited number of shares to short an IPO
2. Given the extreme volatility of IPOs and small amount of past history on a company's fundamentals, this will essentially be gambling with the potential of unlimited downside
Shorting any stock always has the potential of unlimited downside. The only thing that makes this different is your personal evaluation of the riskiness (i.e. - "essentially gambling"). All stock positions are "essentially gambling" when taken to the extreme.
edit: whoever downvoted this, do you not understand how buying puts works? your risk is capped at the money you spent on the contracts. you can only lose that amount.
That sounds like hedging a bad idea with another bad idea. Options expire, so not only do you have to be right that the stock will go down, but you also have to be right that it will go down before your options expire. The further away the expiration, the higher you'll be paying for implied volatility. This sounds like a terrible strategy for a hunch that regulations are going to eventually impact Airbnb at some fuzzy point in the future.
I couldn't help but notice that by that logic auto insurance is a bad idea. Not only you have to be right that you get into an accident. But also you have to get into that accident before contract expires.
Would he pay premium for the options? - Sure. But that buys something. Limiting the loss vs shorting for example. Besides shorting isn't exactly free either.
Auto insurance is risk management, not investing. Auto insurance doesn't expire. OP can keep being wrong for years, buying options over and over until they're no longer liquid. I guess you can do that with any stock. The market already prices that in (implied volatility as I mentioned).
The point is, you don't use options for investment decisions where you don't know the timing of when you'll be right, unless you're hedging another investment.
Every single auto insurance in US I had is a 6 or 12 month contract which expires at the end. The expiration time/date is very specific to the minute.
You usually get a new contract after that which you can choose to pay premium for or loose coverage otherwise.
Yes I'm aware, since they suggested puts instead of calls. I'm not sure what your point is since my argument applies in either case. It's much less probable to be right about both price and timing. You won't have unlimited losses, but you will likely be wrong and lose money, unless you're the one writing the regulations.
> It's much less probable to be right about both price and timing
But that's priced into any analysis of the puts. If you're just arguing that speculation in general isn't prudent, then I'm with you, but you can't really say that a particular bet would be a "terrible strategy" (if you mean that in a negative EV sense?) when we don't know what the prices will be.
2. Given the extreme volatility of IPOs and small amount of past history on a company's fundamentals, this will essentially be gambling with the potential of unlimited downside
Good luck!