Abstract
Instruction concerning derivatives including options should be an integral part of a well-founded academic program in finance. Indeed academicians have made important contributions to the development of option strategy and option pricing, such as the Merton-Black-Scholes option pricing model. So, it is surprising to find that the academic literature is flawed in the discussion of relative risk of the bearish strategies of short selling and put buying. This literature argues that put buying is the less risky strategy based on the notion that the maximum loss from put buying is limited to the initial investment but the maximum loss from short selling can be unlimited. In reality, as we show in this study, in part using simulation analysis, put buying is a much riskier strategy than short selling.