Capital Markets · Hedge Fund Investing Strategies
Short Selling Vs Put Options
This question asks you to compare short selling a stock with buying a put option and understand how the downside risk differs between the two strategies.
Interview question
- Difficulty
- Easy
- Topic
- Capital Markets
- Subtopic
- Hedge Fund Investing Strategies
What this question trains
This problem tests basic derivatives and trading intuition, especially the difference between an outright short position and an option-based bearish view. In an investment banking interview, you are expected to explain how each trade works, how gains and losses arise, and why one structure exposes the investor to open-ended risk while the other limits downside to a known premium. Interviewers ask this to check whether you can think clearly about payoff profiles, risk management, and the practical mechanics of equity trading strategies.