Page 1
Page 1
Started By
Message

Shorting stocks?

Posted on 3/24/17 at 11:39 am
Posted by RedBeardBaw
Member since Feb 2017
370 posts
Posted on 3/24/17 at 11:39 am
Pardon my ignorance, but I'm pretty new at all this stock market stuff. I've been noticing on some boards like StockTwits and others, how some people are "shorting" stocks....They buy high, sell low and turn a profit? Can anyone explain how this works?
Posted by WavinWilly
Wavin Away in Sharlo
Member since Oct 2010
8782 posts
Posted on 3/24/17 at 11:45 am to
This is an ELI5 from reddit that I like:

quote:

I have this here pen. There are millions of identical ones.
It's a good pen, worth $10, meaning you can buy more pens for that price or sell it for that price.
You tell me "hey BANGBANGBOOTY let borrow that pen." I give you the pen and tell you I want it back within 30 days (or some timeframe) or I break your legs.
Because you're a motherfricker, you immediately sell my pen for $10. But you still owe me that pen.
Now let's say the pen market changes and the price goes down to $8. You buy me a new one and give it to me. You just netted $2, a pen has returned to me, and everyone is happy.
But what if pen island gets hit by a hurricane and the price for the pen goes up to $15? You still owe me that pen, and you like your kneecaps, so you buy a pen for $15, and return it to me. You lost $5 on the deal.
Replace pen with stock, and replace BANGBANGBOOTY with "anonymous trader guy".
Posted by HYDRebs
Houston
Member since Sep 2014
1241 posts
Posted on 3/24/17 at 11:48 am to
I was going to answer, but that is fantastically well put.
Posted by baldona
Florida
Member since Feb 2016
20451 posts
Posted on 3/24/17 at 11:56 am to
Shorting, you purchase the stock with the sell price originally. Then you sell it at the buy price. So normally you buy a stock at $90 and sell it at $100, with shorting you purchase it at the set $100 sell price and expect it to drop to $90 in which you "buy".

I don't understand how it works deeper than that, like why anyone holds a stock for you that you bought higher than you think its worth?
Posted by Joshjrn
Baton Rouge
Member since Dec 2008
27068 posts
Posted on 3/24/17 at 12:03 pm to
Being your question has been answered, let me simply add this: If you are "pretty new at all this stock market stuff", pretty please stay away from shorts. That will not end well for you.
Posted by LSURussian
Member since Feb 2005
126962 posts
Posted on 3/24/17 at 12:31 pm to
quote:

They buy high, sell low and turn a profit? Can anyone explain how this works?
That doesn't work.

The idea is to make money if the price of a stock drops.

They borrow shares via their broker and sell those shares high first (hence, why it's called a "short sale") then they buy the shares back and return the borrowed shares LOW, or at a lower price than they sold short.

That will "turn a profit."
Posted by TheIndulger
Member since Sep 2011
19239 posts
Posted on 3/24/17 at 12:49 pm to
On a short sale transaction, is it true that the most you can profit is 100% of your initial sale, but can theoretically lose an infinite amount?
Posted by castorinho
13623 posts
Member since Nov 2010
82031 posts
Posted on 3/24/17 at 1:05 pm to
Short (no pun intended) answer is yes, theoretically.
Bottom is 0, sky's the limit.
Posted by cajunandy
New Orleans
Member since Nov 2015
671 posts
Posted on 3/24/17 at 2:34 pm to
'How to Make Money Selling Stocks Short"
By William O'Neil (Founder of Investor's Business Daily)
With Gil Morales.
O'Neil's other books on the CANSLIM method of investing are also good reads.
Posted by barry
Location, Location, Location
Member since Aug 2006
50344 posts
Posted on 3/24/17 at 3:18 pm to
quote:

On a short sale transaction, is it true that the most you can profit is 100% of your initial sale, but can theoretically lose an infinite amount?



yes, its not for the average trader.
Posted by raw dog
Baton Rouge
Member since Nov 2011
483 posts
Posted on 3/24/17 at 3:22 pm to
quote:

Bottom is 0, sky's the limit.


False.
Posted by Spitting Venom
Member since Sep 2013
1110 posts
Posted on 3/24/17 at 3:35 pm to
(no message)
This post was edited on 4/2/17 at 5:51 pm
Posted by Bestbank Tiger
Premium Member
Member since Jan 2005
71083 posts
Posted on 3/24/17 at 7:14 pm to
Is Trading Places a good example?

Before the crop report came out they were selling while the price went up. After the crop report they were buying, while the price dropped to 29.

The didn't own the shares they bought. They had to balance everything at the end of the day.
Posted by barry
Location, Location, Location
Member since Aug 2006
50344 posts
Posted on 3/24/17 at 8:09 pm to
That's commodity futures, it's different because it's a contract in which one party agrees to sell and one agrees to buy.
first pageprev pagePage 1 of 1Next pagelast page
refresh

Back to top
logoFollow TigerDroppings for LSU Football News
Follow us on Twitter, Facebook and Instagram to get the latest updates on LSU Football and Recruiting.

FacebookTwitterInstagram