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How does one short a stock?
Posted on 2/10/14 at 5:22 pm
Posted on 2/10/14 at 5:22 pm
like literally? i have no idea, i hear people say it, but how does one actually do it?
7
Posted on 2/10/14 at 5:24 pm to The Egg
Posted on 2/10/14 at 5:27 pm to The Egg
Example:
1. Borrow 100 shares of XYZ from your broker
2. Sell 100 shares of XYZ on the open market at $50/share ($5,000)
3. Later, buy 100 shares of XYZ at $40/share ($4,000)
4. Return 100 shares of XYZ to your broker
5. Book $1,000 profit
1. Borrow 100 shares of XYZ from your broker
2. Sell 100 shares of XYZ on the open market at $50/share ($5,000)
3. Later, buy 100 shares of XYZ at $40/share ($4,000)
4. Return 100 shares of XYZ to your broker
5. Book $1,000 profit
This post was edited on 2/10/14 at 5:29 pm
Posted on 2/10/14 at 5:39 pm to The Egg
These days you just go online and place an order to sell short. Sometime later you buy the shares back to cover the short, hopefully at a lower price. That's about all there is to it.
Behind the scenes you're borrowing shares of stock from your financial institution and selling them on the open market. You pay a margin interest rate to compensate the broker. Sometime later you buy the shares back, the broker takes possession of the shares again and the margin loan is terminated.
You do have to have enough in your account to cover a certain amount of losses, btw, and if your position loses enough the stock will be bought back for you to maintain that margin (it's a "margin call") whether you like it or not.
Personally I don't like shorts for a number of reasons, the main one being that the margin interest rate is usually fairly high for a collateralized loan.
Behind the scenes you're borrowing shares of stock from your financial institution and selling them on the open market. You pay a margin interest rate to compensate the broker. Sometime later you buy the shares back, the broker takes possession of the shares again and the margin loan is terminated.
You do have to have enough in your account to cover a certain amount of losses, btw, and if your position loses enough the stock will be bought back for you to maintain that margin (it's a "margin call") whether you like it or not.
Personally I don't like shorts for a number of reasons, the main one being that the margin interest rate is usually fairly high for a collateralized loan.
Posted on 2/10/14 at 5:40 pm to The Egg
I could be wrong but I think you have to buy on margin. I also think that requires a minimum amount.
Posted on 2/10/14 at 5:41 pm to The Egg
You have to have a brokerage account and the account has to be a margin account (i.e, you can borrow against the value of the account). Then, it's as Dr Rosenrosen explained.
Posted on 2/10/14 at 5:55 pm to The Egg
You need to tell us what stock you have in mind and why you think it should be shorted especially if you are an insider. LOL
Posted on 2/10/14 at 11:58 pm to PlanoPrivateer
By buying what is called puts. At least from my understanding. None of my 5 accounts will let me do that. Because from what I get is the there is no ceiling on what you can lose. I can buy call options with 3 accounts but not all of them. I can only write calls on 2. I can only buy penny stocks with 2 of the accounts (not that I often or ever want to) My personal guess is that few non pros get to use the whole option playbook, and even then it is limited. Maybe someone on here knows more. I would love to know.
Posted on 2/11/14 at 5:39 am to Jp1LSU
A put is just an option contract to buy the stock at a given price if it falls below that given price(stike price). Buying one of these is essentially purchasing insurance in case it falls below the strike, then someone is still forced to pay you that amount so your losses are capped. With shorting, losses are theoretically uncapped as the stock could go up 1000% and then you would owe the difference between the price you sold at and the price you covered at. Buying a call would provide insurance against this on the short side.
Posted on 2/11/14 at 6:59 am to Jp1LSU
quote:
By buying what is called puts.
Negative. A short sale is not the same as buying a put, it's closer to buying a put plus selling a call. It's true that losses are potentially unlimited with the pure short, but the time decay of the put is the cost of insuring against that.
Generally speaking options aren't that great a deal for individuals, the transaction cost is just too high.
Posted on 2/11/14 at 3:54 pm to foshizzle
In some securities, there was more stock shorted than there were outstanding shares, during the downturn. Crooked as hell.
My problem with it, aside from the hedge fund collusion, is that you can't short stocks out of your 401K, so it's not an even playing field.
Bring back the uptick rule!
My problem with it, aside from the hedge fund collusion, is that you can't short stocks out of your 401K, so it's not an even playing field.
Bring back the uptick rule!
Posted on 2/11/14 at 3:59 pm to The Egg
quote:For me, I just click on the "Short" button on my trading platform. Schwab does the rest.....
How does one short a stock?
like literally?
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