Funds buying options?

Hedge funds short the stockmarket like retail traders do. They do not borrow shares because it is risky. Steven Cohen and Citadel found out the hard way with their GME and AMC short positions. They borrowed shares of stock. Your risk to the upside is unlimited when you short a stock by borrowing shares. Instead, hedge funds buy put options to short any stock. Risk is limited to cost of the premium. Maximum gain is when the stock they shorted goes to zero. Of course, the stock they shorted does not have to go to zero. A $500 stock that drops to $300 will easily give you windfall profits with your put options.
 
smallfil said:
Hedge funds short the stockmarket like retail traders do. They do not borrow shares because it is risky. Steven Cohen and Citadel found out the hard way with their GME and AMC short positions. They borrowed shares of stock. Your risk to the upside is unlimited when you short a stock by borrowing shares. Instead, hedge funds buy put options to short any stock. Risk is limited to cost of the premium. Maximum gain is when the stock they shorted goes to zero. Of course, the stock they shorted does not have to go to zero. A $500 stock that drops to $300 will easily give you windfall profits with your put options.
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You need to stop posting this nonsense.
 
I don’t know the answer, but I’d conclude/guess that this could be categorized as trading volatility, which may usually be hedged but could also include simply buying calls during low IV.
But large call buys are often visible, increase volatility (like SoftBank did last July-August), and therefore may not be an every day thing for a specific fund. I mean, you can probably see those trades in the options data, and even being discussed online.
While large funds can also negotiate large bets outside of the options market, like Michael Burry did.

Also:
https://thehedgefundjournal.com/the-options-landscape-for-hedge-funds/
 
Funds holding converts and structured notes are also holding options payoffs. Some arb. against them, but many hold them outright. Family Offices also play in the space. No Section 13 reporting for cash-settled products so it's fairly opaque reporting.
 
ajacobson said:
Funds holding converts and structured notes are also holding options payoffs. Some arb. against them, but many hold them outright. Family Offices also play in the space. No Section 13 reporting for cash-settled products so it's fairly opaque reporting.
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So they could be buying up or selling off entire blocks of strikes of SPX and we wouldn't know about them aside from seeing the trades showing up on T&S?? Opaque reporting is an understatement.
 
"So they could be buying up or selling off entire blocks of strikes of SPX and we wouldn't know about them aside from seeing the trades showing up on T&S?? Opaque reporting is an understatement."

True of a number of instruments. Options done on exchanges would still require LOPR(large option position reporting). You can even avoid that by trading off exchange with an upstairs desk and I would guess more SPX is done off exchange than in the lit market.
 
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