Except that when the stop is hit, you're order is placed as a market order. So there's no guarantee on the price. You could use a stop-limit but then there is no guarantee the order will be filled at all.

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re: How do you "short" something

Posted by ObLaDiObLaDa on 7/2/08 at 9:59 am to foshizzle

I guess you have a point about stocks where there aren't options traded. Especially considering the smaller stocks are the ones you're probably more like to make money on going short.

quote:
Options (for the individual investor) tend to be expensive insurance, this is a better play for an institution that has lower transaction costs.

Are you saying shorting is a better strategy for individuals and puts the better strategy for institutions? I would think the opposite.

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re: How do you "short" something

Posted by ObLaDiObLaDa on 7/1/08 at 10:09 pm to Powerman

Don't sell short. Just don't do it. With the existence of the put option, selling short just doesn't make sense. (Unless you have some illegally obtained inside information) You pay a premium, but your loss is limited.

Not to mention when you short you have to pay the dividends on the stock. Essentially, if you short 1 share of XYZ, you have "created" one share of XYZ, and are required to pay the dividends on that share as if you were the corporation XYZ. If you buy a put, you don't pay dividends, and your loss is limited to the price of the put. If you short, you pay dividends, and your loss is in theory - limitless. Limitless losses are bad!

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