Why Selling Calls Instead of Shorting Is Often Better
Think a stock like UVXY, UVIX or BOIL is going down? Most people know about shorting, but there’s actually a better way.
First, let’s get clear on the basics:
Shorting stock = Borrowing someone’s shares, selling them now, hoping to buy them back cheaper later
Selling calls = Getting paid to make a promise: “I’ll sell you this stock at a specific price if you want it”
Think of it like this: Shorting is like borrowing your neighbor’s lawnmower, selling it for $500, and hoping you can buy the same mower for $300 later to give back to them. Selling calls is like getting paid $50 to promise someone they can buy your lawnmower for $600 next month (when you think it’ll only be worth $400).
You Automatically Have an Edge
With shorting, you only make money if the stock goes DOWN. With selling calls, you make money if it goes down, sideways, or even up a little bit. That’s three ways to win instead of one.
Let’s say XYZ stock is at $100 and you think it’s overvalued. Instead of shorting it, you sell someone the right to buy it from you at $110 for the next month. They pay you $200 for this right.
Stock drops to $90? You keep the $200. They won’t buy at $110 when it’s worth $90.
Stock stays at $100? You keep the $200. Still no reason to buy at $110.
Stock goes to $105? You still keep the $200. They still won’t exercise.
Stock goes to $108? You keep the $200. You’re still winning.
No Borrowing Fees
When you short a stock, borrowing fees can destroy you. Take UVXY, the borrowing cost can hit 50-100% per year. That means you’re paying $50 to $100 annually just to short $100 worth of stock!
You need massive drops just to break even.
With selling calls on UVXY? No borrowing fees. Zero.
No Shorts Available
Sometimes you literally can’t short a stock at all. When a stock becomes heavily shorted, brokers run out of shares to lend. You’ll see “Not Available” next to the stock. Your bearish thesis might be 100% correct, but you can’t act on it.
This happens frequently with volatile stocks like UVXY, meme stocks, or companies facing bankruptcy. The shares simply aren’t available to borrow.
With selling calls? This problem doesn’t exist. As long as there’s an options market you can execute your bearish strategy. No borrowing needed.
You Can Control Your Risk Better Using Call Spreads
Sometimes you’ll be wrong. The stock you’re bearish on will go up. This is where Call Spreads come into play.
Say you shorted 100 shares at $100. The stock rockets to $150. You just lost $5,000. That hurts.
But if you sold a call spread (selling one call at $110 and buying another at $120), your maximum loss is only $1,000 no matter how high the stock goes. It could go to $1,000 a share and you still only lose $1,000.
You can literally choose how much you’re willing to lose before you even make the trade.
Pick Your Odds Like the House
This is the part that will really make sense once you see it. When you sell calls, you can basically choose your probability of winning.
Want to win 90% of the time? Sell calls way above the current price. You’ll make less money per trade, but you’ll win almost every time.
Want bigger payouts? Sell calls closer to the current price. You’ll win less often but make more when you do.
It’s like being the casino instead of the gambler. You can set up trades where the odds are heavily in your favor. The trade-off is smaller profits, but consistent wins can add up quickly.
When Shorting Still Makes Sense
I’m not saying never short stock. Sometimes it’s the right move:
If you think a stock is facing a bigger than expected immediate collapse
If you want to hold the position for many months or years without managing it
If the options market for that stock is illiquid or has wide bid-ask spreads
But for most bearish bets, selling calls offers more flexibility and better odds.