Give me a example of short selling.

[Borden_john]

Hi all, Can some one make an example of when short sell and buy to cover
will be worth while? Sorry if it seems like a noob questions but it seems
extremely risky :oops:

[TonyM]

It is very risky; you need a margin account to sell short and there is no limit to how a high a stock can go, therefore your losses can be unlimited plus interest! Obviously a stop limit can limit your downside, but it's still considered pretty risky for people who are not yet fully familiar with the long side of trades. Still not as risky as options though.

[metalheadrr3]

Here's an easy analogy of short selling. You borrow your friend's bike ... someone offers you $75 for it, so you sell it. You then go to Walmart and buy the exact same bike for $50 and give it back to your friend. You pocket the $25 bucks. Now imagine the reverse. Walmart doesn't have the bike so you have to go someplace else and the bike is $125. Well you have no choice but to pay it so you are now out $50 bucks. If no one had the bike you'd have to find someone and probably pay hundreds more. That's short selling.

[BlackholeDivestment]

...well, it ain't risky if ...yer back stopped by idiots that still provide labor as the self devouring tax payer beast, the U.N.-credit worthy capital and interest swapped for the New World Order Default Sellout & Legislative Executive Bail-out of ''da plane da plane'' Tatu it's just a Fantasy in the Cayman Island Illuminati Mustang Ranch Branch Office of no accountability that Madoff and Failed with Fiat Money printed with a tomb capped with the eye of Horus on the Green Backdoor etc...

Example: Reinsurance/Reassurance or vice versa depending on your perspective in relation to your legitimate attempt at defense or criminal account ... Labor/AIG=WTC= http://911research.wtc7.net/sept11/stockputs.html http://www.informationliberation.com/index.php?id=15459 http://www.youtube.com/watch?v=7WYdAJQV100 http://www.nowpublic.com/world/warren-buffet-henry-kissinger-x-aig-mitre-corporation-blackstone-group-911 http://www.onlinejournal.com/artman/publish/article_1261.shtml

[Bolimomo]

It is very risky; you need a margin account to sell short and there is no limit to how a high a stock can go, therefore your losses can be unlimited plus interest!

I don't understand the "interest" part. Yes you do need a margin account in order to short stocks. The reason is your added agreement - the brokerage firm can liquidate your position to protect themselves in the event that a stock's price rises beyond your margin level. If you strictly buy a stock, then you can own it forever and nobody can touch it (even if it goes to zero). It's yours. But if you buy stocks on margin (borrowed money) or short a stock, the brokerage firm has ultimate control to liquidate your holding.

If you have $10000 in your margin account, and your short position is only $9000, you don't need to pay any margin interest.

But... you are liable to pay the dividends for that stock (if it pays dividends). It will be debitted from your account.

All textbooks and training courses will say that when you short a short, your risk is UNLIMITED. Yeah right... That's theorectical. Like... theorectically you can win a $100 million lottery. I have never seen a stock whose prices went to infinity. Yet I have seen many stocks whose prices went to zero. Even a stock as promising as GOOG couldn't break $700. Yes you would have been in trouble if you shorted MSFT 20 years ago. But... your risk is limited to the money you have in your account, not UNLIMITED - because your brokerage firms would have covered your short positions before your margin money is out.

Wall Street people teach Main Street people not to short stocks. Because that's THEIR playing field.

Telling people not to short is like teaching someone how to play tennis but you tell them they can only play forehand, never backhand.

Having said all the above... shorting requires a higher level of trading skills. It is not for beginners. So think about who you are, who you want to be. If you are investor, forget about shorting. If you are going to be an active trader, then you must learn the skills to play this market short and long. I see that in the next few years we will be in a trading range at best. If you buy and hold, your net result is most likely "zero" after a few years.

[Bolimomo]

Hi all, Can some one make an example of when short sell and buy to cover
will be worth while?

4034

Let's say last year around September, you felt that the market was going bearish. You looked at the chart of AAPL (Apple Computer) and you saw that it broke the support of $150 and was at $130. You had a feeling that it would continue to go down. You went short on 100 shares of AAPL at $130. It would have costed you $13000 ($130 x 100) in your margin account. Today, AAPL is worth $83. The 100 shares of AAPL worths $8300 ($83 x 100). If you buy to cover on your position, you would have gained $4700 in your account.

A lot of novice traders made the mistaking of shorting high-flyer Internet stocks back in the late 90's. That's really the wrong thing to do. You don't short a stock on the way up - no matter how rediculously high the stock price looks. People got killed shorting GOOG at 300, then 400, then 500. But you should short stocks in a down market, or a ranging market.

[none9999]

Hi all, Can some one make an example of when short sell and buy to cover
will be worth while? Sorry if it seems like a noob questions but it seems
extremely risky :oops:

Maybe I am missing something but the question was asked in 2006!! :). I guess better late than never!!!!!!

[Bolimomo]

Maybe I am missing something but the question was asked in 2006!! :). I guess better late than never!!!!!!

Josh... good catch None!

I have wasted my brain cells on this!

[none9999]

Josh... good catch None!

I have wasted my brain cells on this!

Well, I am sure the answer will still be helpful to a few. And it does seem like you have enough brain cells to throw a few around :biggrin:

[BlackholeDivestment]

http://www.deepcapture.com/deep-capture-the-explanation/

[smartinvestor30]

Maybe I am missing something but the question was asked in 2006!! :). I guess better late than never!!!!!!

LOL, this guy probably went on to buy some real estate and is kicking himself now

[Gordo]

Josh... good catch None!

I have wasted my brain cells on this!

I like what you said about Wall Street not wanting Main Street to short because its their game. Very true indeed. Good thread answers from everybody.

[aiki14]

http://www.deepcapture.com/deep-capture-the-explanation/

Thanks for posting this without your usual nonsense, I glaze over and move on to the next post after the first sentence usually and would have missed this.

I will say there are a few points where I am not in total agreement with the author but on the whole it's seriously worth the time to read it and it certainly makes a good case for the reason "wall st" wants no part of "main st" taking short positions en masse. I and others here have made comments about how the regulations for market makers essentially amount to letting them naked short, and as the article notes "failure to deliver" or worse "not even intending to deliver" is rampant and would be curtailed if: a) the regulators did their jobs b) the masses entered into many short positions. A is obvious and self explanatory but b is less so, so I'll give it a try. If the short interest was so grossly above the float that there could be no doubt there were naked positions or doubling (where the same shares are leant out to 2 entities), even Mr. MaGoo over at the SEC could see it, they would have to do something. First they go after the little guy and we're seeing that when you hear about the discount brokers can't get the shares to loan. While it's not quite as simple as that, the discount guys don't have the cap reserves to hold the shares or take the options positions to make holding the shares a market neutral position the way the big guys do. Two years ago you didn't hear this kind of thing at all from scottrade or etrade. Last january I was in short positions in ABK and MBI and was able to get the shares through Merrill but they were unavailable from E*trade or Scottrade at the same time. That was when Bill Ackman had a huge short position and the news was making a big deal about it and the Big guys literally took that trade away from the retail investor. Their other choice would be to actually loan the shares out in a fair manner "first come first serve". You could just imagine the laughter in the board room when someone jokingly brought that up.
I can't fault the SEC too much as their budget was cut to the bone and their oversight was so pro wall st that they had no real chance even if they were so inclined to take on such a problem.

Kind of cool that a 2 year old question should make such a topical discussion, my thanks again to BHD for dredging it up.

[runlikeanantelope]

Do you have to use a Margin Account to Short? For example, say I want to short Starbucks (SBUX) today and have $1000 in my cash account. I short it at $9 for 100 shares for $900 and I wait until it goes down to $8. Would I be Buying it or selling it at the $8 level?

What would my orders look like too:

Short 100 SBUX Order Type: Limit $9

and then a:

Sell 100 SBUX Order Type: Stop Limit $8


Is this correct? Is the sell a Limit, a Stop Limit, or a Stop?? Or am I way off here?

[simpletradesnet]

Short $9.00 limit order
Buy to Cover $8.00 limit order.

You cant use a stop on a buy if the current price is higher than that $8.00.

You wouldnt anyhow, the buystop would be somewhere over $9.00 to protect you from too great of a loss if prices climb higher not lower.

[Bolimomo]

Do you have to use a Margin Account to Short? For example, say I want to short Starbucks (SBUX) today and have $1000 in my cash account. I short it at $9 for 100 shares for $900 and I wait until it goes down to $8. Would I be Buying it or selling it at the $8 level?

You do need a margin account in order to short stocks. The reason is: when you buy a stock, you use your money in exchange of the stock. But when you short a stock, your money is only used as a collateral (i.e. margin). The brokerage firm will find the stock from some other owners, may be Joe the plummer, then let you borrow it so you can sell it in the open market to John. But in the event that the stock price rises, the brokerage firm needs to make sure you have the money (margin) to buy the stock back from the open market.



What would my orders look like too:
Short 100 SBUX Order Type: Limit $9
and then a:
Sell 100 SBUX Order Type: Stop Limit $8
Is this correct? Is the sell a Limit, a Stop Limit, or a Stop?? Or am I way off here?
Right on the first. Wrong on the second. When SBUX goes down to $8, you do a "buy to cover" at limit price of $8. Not sell.
Limit order, Stop Limit order, Stop Market order... doesn't matter. Your action is "buy to cover".

[simpletradesnet]

you do a "buy to cover" at limit price of $8. Not sell.
Limit order, Stop Limit order, Stop Market order... doesn't matter. Your action is "buy to cover".[/quote]

To be sure you didnt get confused, you can only use a buystop as an exit (stop limit or stop market types) to buy to cover at $8.00 if the current price at the time is BELOW $8.00. If the price hasnt reached it on the way down, use a limit order for $8.00 as a buy to cover.

(in my example the $8.00 buystop used when price was already below $8.00 would be a protective stop loss against closing out much above the $8.00 cap on a reversal)