Shorting stock | General financial discussion | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

No permission to create posts
sp_Feed Topic RSS sp_TopicIcon
Shorting stock
June 10, 2020
7:47 pm
Bud
Member
Members
Forum Posts: 1226
Member Since:
February 20, 2018
sp_UserOfflineSmall Offline

How does it work just sell the amount of shares u wanna short say 100 shares of ABC put in a sell order to short borrow the stock. Then when i want to close the position put a buy order in to buy 100 shares to pay back the borrowed stock. Assuming a liquid known stock. any other risks besides stock goin up n suffering a loss

June 10, 2020
9:21 pm
cruzinalong
Ontario
Member
Members
Forum Posts: 223
Member Since:
April 15, 2020
sp_UserOfflineSmall Offline

My advice is do not do it. I traded metal futures for 5 years in the late 70's early 80's. I went LONG. I went SHORT. I lost a fortune. I worked and recovered from the huge loss. I once bought a contract of CAD at 92 cents. What happened? The Canadian dollar continued to decline.

Covered calls did that more recently. Own 500+ shares of something. Write 5 contracts near expiry dates out of the money. One person says 3 months max. You must get a buck premium at least. Do nothing until the day after the contract expires. What happens? If the stock moves in the money you are assigned and you sell the stock. You made a buck * 500. If the stock declines you hold onto the stock. Your cost on the stock declines by covered call premium. Do not write more than 5 contracts on one stock at a time. You make money. You can stop after the call expires. If you do it on 5 different stocks some will be assigned. Some not. The last time I did this a little over 3 years ago I choose my bank stock. I preferred going back to BUY/HOLD and dividend reinvestment strategy. Different strokes for different folks.

June 11, 2020
6:40 am
Bud
Member
Members
Forum Posts: 1226
Member Since:
February 20, 2018
sp_UserOfflineSmall Offline

I asked about simply shorting a stock the mechanics on the typical discount brokerage platform not a complex trading strategy

June 11, 2020
7:48 am
Doug
British Columbia, Canada
Member
Members
Forum Posts: 3616
Member Since:
December 12, 2009
sp_UserOfflineSmall Offline

Bud said
How does it work just sell the amount of shares u wanna short say 100 shares of ABC put in a sell order to short borrow the stock. Then when i want to close the position put a buy order in to buy 100 shares to pay back the borrowed stock. Assuming a liquid known stock. any other risks besides stock goin up n suffering a loss  

Short answer: If you have to ask basic questions on the mechanics of shorting a company's stock or an ETF's units, you shouldn't be doing it.

I understand it, but it's not my thing. If I was going to do anything complicated, I would write (sell) out of the money put options, when the option premium is there by the volatility level in the markets, to potentially buy a company I want to own long term at cheaper prices (this is actually a long strategy). It's also an income strategy in that if the stock price doesn't fall at or below the level I've agreed to buy the stock at, I collect my insurance premium to which the put buyer (current holder of the stock) agreed to pay me to hedge their downside risk. sf-cool

Cheers,
Doug

June 11, 2020
8:13 am
toto
Member
Members
Forum Posts: 258
Member Since:
August 17, 2010
sp_UserOfflineSmall Offline

Today could be the start of the next leg down that Doug predicted.

June 11, 2020
1:32 pm
emax1234
Member
Members
Forum Posts: 12
Member Since:
September 8, 2018
sp_UserOfflineSmall Offline

Bud said
How does it work just sell the amount of shares u wanna short say 100 shares of ABC put in a sell order to short borrow the stock. Then when i want to close the position put a buy order in to buy 100 shares to pay back the borrowed stock. Assuming a liquid known stock. any other risks besides stock goin up n suffering a loss  

Answering your question: Essentially you borrow (from your brokerage margin account) the value of the shares you want to short. You pay interest on this loan to the brokerage for the duration. When you close your short position you effectively pay back this loan and calculate your profit - how much the stock declined minus your costs (interest, fees, etc.).

If the stock doesn't go down enough to cover your costs then you have a net loss. If the stock instead goes up, you lose the difference in addition to the interest, fees, etc. If the value of your account drops too low and your borrowings ratio goes above the allowable "maintenance margin", the brokerage will demand you deposit more funds or they'll sell stock and/or close your short position to get your ratio back in line -- in either case you may crystallize your losses.

Overall it's a high risk speculation.

More info: https://www.investopedia.com/terms/s/shortselling.asp

June 11, 2020
1:51 pm
savemoresaveoften
Member
Members
Forum Posts: 480
Member Since:
March 30, 2017
sp_UserOfflineSmall Offline

Bud said
How does it work just sell the amount of shares u wanna short say 100 shares of ABC put in a sell order to short borrow the stock. Then when i want to close the position put a buy order in to buy 100 shares to pay back the borrowed stock. Assuming a liquid known stock. any other risks besides stock goin up n suffering a loss  

u prob not the sophisticated investor to do a outright short sale if you have to ask the question here. Any way I will answer not judging whether you should do it or not as it is your money after all.

1) Not all discount brokerage account allow outright short sale, if it does, it requires a margin and you will be subject to margin call
2) No such thing as "assuming" a liquid known stock, stock can trade liquid for whatever reason and a liquid stock does NOT mean it is easy to borrow (if you know what short squeeze means)
3) When you borrow a stock, you may be charged as much as 100% overnite interest at the extreme (again short squeeze). A stock can trade liquid and still you may be charged a huge loan interest to borrow the stock

Good luck if you decide to short any stock. Buy a naked put and spend some premium a much less risky move if you ask me....

February 1, 2021
4:35 pm
Bud
Member
Members
Forum Posts: 1226
Member Since:
February 20, 2018
sp_UserOfflineSmall Offline

Omg what a scam short selling is especially now that mainstream companies even in the s&p are being pumped. From bankrupt Hertz to Game even Tesla which makes no profit without government rebates. And u really can get wiped out. I figured a company goin down the drain would be a somewhat limited loss. Take Game for example a relatively small amount only 5 or 10k shorted at 30 woulda cost u 100-200k.

What's worrisome now is the pump&dumps have scared away legitimate shorts. Now any company can be hijacked and many have been as we've seen a plethora of profitless tech cos. go public n reach valuations higher than Canada's biggest banks.

Where can i find the short interest on individual companies

February 2, 2021
6:08 am
savemoresaveoften
Member
Members
Forum Posts: 480
Member Since:
March 30, 2017
sp_UserOfflineSmall Offline

Bud said
Omg what a scam short selling is especially now that mainstream companies even in the s&p are being pumped. From bankrupt Hertz to Game even Tesla which makes no profit without government rebates. And u really can get wiped out. I figured a company goin down the drain would be a somewhat limited loss. Take Game for example a relatively small amount only 5 or 10k shorted at 30 woulda cost u 100-200k.

What's worrisome now is the pump&dumps have scared away legitimate shorts. Now any company can be hijacked and many have been as we've seen a plethora of profitless tech cos. go public n reach valuations higher than Canada's biggest banks.

Where can i find the short interest on individual companies  

Its not a scam, it is a simple supply vs demand story. What you saw in GME is essentially leverage long via call options result in a huge demand for actual stocks that need to be bought by the market makers to cover their "implied short" when they sold the call options to the little lemmings, which together became a bigger giant than the market makers.

Think of it this way, the dudes who bought the call options used it as a leverage long, and they dont sell actual shares to hedge. The market makers/professionals who sold the call options HAVE to buy shares to hedge their short position. End result is what traders know as gamma squeeze, a term non-industry players are not familiar with, but essentially a short squeeze in laymen's term.

February 2, 2021
7:29 am
Bud
Member
Members
Forum Posts: 1226
Member Since:
February 20, 2018
sp_UserOfflineSmall Offline

The above response is why i say its a scam no investor except a few insiders could be expected to figure that all out n have accurate info. It's a cheaters game. And lookin at options one gets the sense they are unable to fulfill some contracts reasonably.

February 2, 2021
11:00 am
savemoresaveoften
Member
Members
Forum Posts: 480
Member Since:
March 30, 2017
sp_UserOfflineSmall Offline

Bud said
The above response is why i say its a scam no investor except a few insiders could be expected to figure that all out n have accurate info. It's a cheaters game. And lookin at options one gets the sense they are unable to fulfill some contracts reasonably.  

it is certainly not grade one material in this case when it comes to investment knowledge or how the market works, quite complicated for the average Joe for sure. But it is not a scam/ cheat. No one lies about GME's financial strength, no one guarantee any one a particular trade will make $. Its all a fair game. One decides to play, one lives with the consequences, some good, some very bad.

Best story is a 10years old kid who was given 10 shares of GME as a birthday gift last year. He decided to cash out at or near the high point. Not bad to turn $70 into $4000. He did not cheat or lie to anyone to earn it 🙂

February 2, 2021
11:59 am
Bill
Member
Members
Forum Posts: 2279
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

I think Bud's point is that big-holding insiders have unfair advantages over retail investor outsiders who try to play the short-term ins and outs of the market based on minutes-old news available to all. What I found surprising, well I guess I kinda thought everybody already knew that.

February 2, 2021
2:07 pm
Norman1
Member
Members
Forum Posts: 3805
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

That advantage that big-holders insiders have is knowledge and understanding that's not unfair. Many of them can read a balance sheet and can tell if the shares are overvalued or not.

That's in contrast to many retail investors who don't even understand that the shares they are trading are fractional interests of a business.

It is not surprising that many retail "investors" don't do well judging from the stupidity of some of the "advice" I've received from other retail investors.

I remember one relative advising me that I was wasting my time with blue chip stocks. I ought to be investing in penny stocks. After all, when a 50¢ penny stock goes up by 50¢, the investor has made 100%! In contrast, when a $25 blue chip stock goes up by 50¢, the investor has only made 2%. sf-surprised

Didn't understand that a company can split or consolidate its shares to get any share price desired.

There there was that friend that was surprised I had money in Bank of Montreal instead of Nortel. Bank of Montreal shares were trading at all time highs. Therefore, upside was limited. In contrast, Nortel was trading around $10, down from their high of $124. Much more upside potential! sf-surprised

Didn't understand that a high is not a ceiling and that a high in the past does not exert an invisible pull on the shares upwards.

February 2, 2021
5:35 pm
Bud
Member
Members
Forum Posts: 1226
Member Since:
February 20, 2018
sp_UserOfflineSmall Offline

Banks were bailed out again their excess capital should be returned to taxpayers.

It's time for common shareholders to pay the piper.

Gic investors should receive the same tax treatment as business.

February 2, 2021
6:18 pm
Bill
Member
Members
Forum Posts: 2279
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

There is often inside information that retail investors just don't have access to until a later time. I used to quiz relatives and acquaintances that worked for certain companies re the operations, the contracts they had, etc, you find out some interesting stuff sometimes. One example: I have a relative who for a while worked underground in a gold mine (junior operating company) who made a point of conversing regularly with the geologists who came daily to examine which direction to drill to follow the best seam, etc and he and I were able to put together this info gleaned at the earliest possible moment re grams of gold per ton estimates plus a bunch of other data that we then compared to what the share price was based on, to what other mines were getting out of the ground, industry norms, etc, etc, and it seemed to us the stock price was greatly undervalued based on that latest data that would become public over time later. Turned out we were very right. Point is, I'm not naive enough to think that was the only time in history that someone got inside info before it was widely known, I imagine it goes on every day, especially for the wealthy, connected crowd, the hedge funds, etc.

February 2, 2021
8:09 pm
Loonie
Member
Members
Forum Posts: 6851
Member Since:
October 21, 2013
sp_UserOnlineSmall Online

I agree with Bill. If you're in the right place or have the right kinds of contacts, it's surprising what you can learn.
I was in Yellowknife once when a reputable sort of fellow, a local, told me that a proposed diamond mine there was about to go into production or something along those lines, but it had not been announced yet. I had the impression he was trying to do me a favour.
This turned out to be correct. It was a major announcement when it came and the price of the stock shot up.
I didn't buy any, as I don't know anything about diamond mines, but I imagine lots of people in Yellowknife knew about it and some made a good profit.

February 2, 2021
9:01 pm
Norman1
Member
Members
Forum Posts: 3805
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Don't need the inside info and it's still risky.

Author Morton Shulman wrote in one of his books that he received an inside tip about a takeover and bought shares. Company had a fire shortly afterwards on one of its oil platforms. Takeover fell through.

Same with gold. Gold deposit was discovered. But, further analysis found lots of mercury with the gold. That made refining it very expensive and uneconomic. Shares collapsed.

No-one tipped me off that Microsoft would be 10X its price 15 years later.

There's lots of money to be made (and kept) by those who know how to analyze public information. It's just too bad for those who don't know how to, can't also figure out how to buy an S&P 500 ETF, and keep believing in conspiracy theories to justify their lot in life.

Ditto with those comments about "gatekeeping" of information. Real time data is under $100/month. If one can really make $1,000 to $2,000 a month trading with the help of tick-by-tick market data, then it is really stupid not to pay the $100/month and do it.

People seem to be ignorant of a basic fact: Valuables are not free. Think about that. Valuable information and insights are also valuables. The book Investment Management in Canada by James Hatch was far from free. The amount of money I made from what I learned from that book is astronomical compared to the $50 it cost me.

It is really sad to see that kind of attitude. When I was in high school, a copy of Encyclopedia Britannica was thousands of dollars. Not something my parents could afford. I just checked. Online access now to the contents is US$75 a year! My parents would paid US$75/year for me to have access to that kind of information.

February 2, 2021
10:39 pm
Kidd
Member
Members
Forum Posts: 644
Member Since:
February 27, 2018
sp_UserOfflineSmall Offline

BUD.

This is my understanding. Shorting

ABC has a current value of $10 a share.

You borrow 100 shares of ABC. You believe ABC is going lower. You SELL the 100 borrowed shares of ABC at $10. You have an instant $1,000 in your pocket.

ABC goes to $8. You buy 100 shares of ABC at a cost of $800. You give the 100 borrowed shares back. You made $200 profit.

ABC goes to $20. You must return the 100 borrowed shares of ABC. What you sold for $1,000 now costs you $2,000 to buy.

February 3, 2021
5:21 am
Bill
Member
Members
Forum Posts: 2279
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

Norman1, everything you say is right, i.e. inside info doesn't always pan out. But on the other hand, often it does. And you say lots of folks make good money being smart & informed - very true. (What I'm saying is not mutually exclusive with what you're saying, I'm saying there's also some rigged stuff in financial business, no different than any business where insiders know stuff that's unknown outside.)

Ands also true that your "real time" data doesn't become available until after events like I described re the gold mine or Loonie re the diamond mine. And every time there's an initial offering or a proposed takeover there are always some involved insiders or interested onlookers (like my relative at the drilling point) who know about it before "real time" data has a whiff of it. Come to think of it I seem to remember some of the big bank brokerages had their hands slapped years ago, something about when you put in a sell order they (supposedly your agent for conducting the trade) would instead buy it and then sell a second later for a tiny bit more for stocks that were on the uptick - I'm pretty sure I've got the details wrong but it was something like that. Stuff like that goes on all the time, everywhere, and that's what Bud seemed to be surprised by, I think.

February 3, 2021
6:06 am
savemoresaveoften
Member
Members
Forum Posts: 480
Member Since:
March 30, 2017
sp_UserOfflineSmall Offline

BUD
Inside info have to exist cuz some people work on the "inside" projects. And with the advance in monitoring tools and whats not, one better fly under the radar if decided to actually act on the insider information. That is something I would never do. If you do it so small and make only a few $$ to fly under the radar, there is no point doing it anyway. There is enforcement at the company and regulation level to catch you.

As to the complaint of live data not available freely, why should it be free to begin with ? Or I can argue everything should be free ??

Finally to say banks got bail out (which is not true), the biggest beneficiaries at are actually the average Joe and the economy, not the bank shareholders. It is deeper than what the surface shows.

No permission to create posts

Please write your comments in the forum.