Stock returns of newly public companies are significantly lower in the weeks after their options begin trading, on average. We do not find the same effect on seasoned firms, and the result is unlikely to be explained by the timing of when the exchanges list options. We rule out the relaxation of short-sale constraints as an explanation because security-lending data suggest that short-sale constraints worsen after options begin trading. Open-close option volume data show that proprietary trading firms accumulate negative equity exposure on newly public companies by purchasing put options. These put-buying activities correctly predict the stock return of newly public companies and lead option market makers to hedge in the direction that exacerbates the underlying equity short-sale constraints. We provide evidence suggesting that the information advantage of proprietary trading firms comes from their affiliation with the underwriter who took the company public. Our results compellingly support the role of the options market as a venue for information-based trading rather than mitigating short-sale constraints.