Seems like this plan didn’t get thought all the way through: A moratorium on short selling underlying stocks would cause increased demand for put options and tend to raise their premium. If sellers of put options ca’nt short stock to hedge their put selling, this too will tend to increase put option premium. If buying put options as insurance to hedge against a long equity position therefore becomes too expensive, this will tend to decrease demand for buying the equity — and tend to lower its price.
Then there’s option exercise: how do equity options settle if you can’t be assigned on in-the-money short calls or long puts if it would result in taking a short position?
